Case Law Details
Atluri Usha Rani Vs Asst. CIT (ITAT Hyderabad)
I have carefully considered the rival submissions and perused the record. I have also carefully perused the development agreement-cum-GPA. The said agreement shows that the builders and developers have to bear all the expenditure for preparation of the said plan, obtaining licenses, permissions as well as execution of work and thereafter the parties / land owners are entitled to 50% of the built up area; This shows that the assessees are merely entitled to a specified constructed space and not 50% of the land. The builders have taken over the possession of the entire land and in lieu thereof assessee was entitled to get only 2845.15 sft. It is also not in dispute that as per the developer, vide letter dated 06.01.2015, cost of construction was Rs. 1,450/- per sft but as per the registered document, for the purpose of allotting the constructed place, the cost of construction is mentioned at Rs. 1,083/- per sft (1,108/- in the case of Smt. Usha Rani) and therefore, A.O. as well as Ld. CIT(A) have taken that figure as the value obtained by the assessee in lieu of transfer of the land. A transfer can be said to have taken place in the year when the possession was handed over by the assessee, as per the decision of Hon’ble jurisdictional High Court (supra). Thus, capital gains tax, if any, is attracted in the year of agreement and not in the later years. Since the developer has agreed to pay the assessee at the rate of Rs. 1,083/- per sft it is not appropriate to claim that only SRO value has to be adopted. If the assessee, purchased a land and the purchase consideration is not provided clearly, SRO value as per the Act as on specified date could have been taken into consideration whereas in the instant case the rate is specified by both the parties. Moreover we are not concerned with purchase cost. Under these circumstances, I am of the firm view that the concurrent findings of the A.O. as well as the Ld. CIT(A) do not call for any interference.
FULL TEXT OF THE ITAT JUDGMENT
Since the issue involved in both these appeals is identical, I proceed to dispose of these appeals by a combined order, for the sake of convenience.
2. At the outset, it may be noticed that the appeal filed by Smt. Atluri Parvathi Devi is barred by limitation at 32 days. The assessee filed an affidavit and also an explanation seeking condonation of delay wherein it was stated that though instructions were given to the Counsel to file a further appeal, it was not followed up, under the impression that signatures are not required on any other paper since authorisation was given to the Counsel. Later on, when she called up Counsel to check up the status of the appeal, the Counsel informed that appeal could not be filed for want of signatures. Thereafter, immediate steps were taken to file the appeal. The delay was on account of ignorance of the procedure and thus submitted that there was sufficient cause for not filing the appeal in time.
3. Ld DR has not raised any objection for condonation of delay.
4. Having regard to the circumstances of the case, the delay of 32 days is condoned as having been supported by sufficient cause. Thereafter both the appeals are taken up together.
5. For the previous year relevant to the A.Y. 2009-10, both the assessees declared house property income, capital gains and agricultural income (in the case of Smt. Parvathi Devi). They are the part owners of the land on which they entered into development agreement with M/s. Diamond Infra. Though the development agreement is dated 12.05.2008, no capital gains were declared and hence notices u/s 148 dated 17.12.2013 were issued by the Assessing Officer in response to which assessees admitted short term capital gains. Thereafter notices u/s 143(2) and 143(1) were issued and after collecting the information from the assessee, assessments were processed accordingly. In the case of Smt. Parvathi Devi, A.O. observed that a development agreement-cum-GPA was entered into with M/s. Diamond Infra for development of land of 267 Sq. Yards whereby the assessee has to get 2845.15 sq ft of developed area (2748.96 sq ft in the case of smt Usha Rani) in the form of two flats in lieu of the land handed over to the developer.
6. As per the material available, Smt. Parvathi Devi purchased the land on 29.08.2005 vide sale deed no.6460/2005. The assessee admitted total sale price of Rs. 7,34,250/- and reduced the cost of acquisition at Rs. 3,23,700/- and arrived at short term capital gains of Rs. 4,10,550/-.
7. A.O. observed that adoption of the sale price is not commensurate with the value of developed area adoptable and hence it is a duty of the assessee to substantiate the method adopted for arriving at the capital gains. In response thereto, the assessee submitted that the market value of land, as certified by the SRO, was adopted. A.O. observed that the cost of super-structure / developed area, coming to the share of the assessee, was not considered at all in arriving at the capital gains. It is the claim of the assessee that no super-structure was given to the assessee till date and hence there is no incidence of capital gains.
8. According to A.O. the issue for consideration is whether there arose any capital gains consequent to the development agreement entered into on 12.05.2008. The case of the assessee was that the developer has not handed over any developed area/flats in the year under consideration and hence no capital gains arose. However, the A.O. observed that consequent to entering into development agreement with various land owners of Diamond Hills area (about 20 people) the firm started construction of the project and incurred expenditure running into crores of rupees from FY 2008-2009 onwards. Since huge expenditure was incurred, the A.O. was of the opinion that the developer has acted upon the agreement and continuously invested in the project, year-after-year. Though there were some problems like ground water and other general problems in the vicinity, because of which the project could not be completed on expected lines, by 2015, 90% of the project was completed, as confirmed by the builder, and certain flats were handed over to the land owners by the year end. In this regard he observed that Smt Usha Rani sold her share of flats in semi-furnished stage in the month of January 2013, which proves that the flats were handed over in semi-furnished stage to the assessees. Therefore, A.O. concluded that capital gains tax is leviable in the year when the development agreement was entered into.
9. The next issue is with regard to the exchange value to be adopted in the hands of the assessees, in lieu of transfer of their land to the builder. The purchase value of the land in question, as per the purchase deed, is Rs. 6,16,000/- and Rs.5,87,400/-respectively in the hands of Smt. Usha Rani and Smt. Parvathi Devi and they have also incurred registration charges of Rs. 58,520/- and Rs. 60,000/-. As per the registered development agreement the cost of construction is mentioned at Rs. 1,108/- per sft in the case of Smt. Usha Rani and Rs. 1,083/- in the case of Smt. Parvathi Devi whereas the developer, vide letter dated 06.01.2015 submitted that the cost of construction is Rs. 1,450/- per sft, including the costs incurred towards interests on loan till that date. Considering that there was some delay in completion of the project, which is not attributable to the assessees, the A.O. adopted the exchange value at Rs. 1,108/- per sft. The A.O. relied upon the decision of the Hon’ble jurisdictional High Court in the case of Potla Nageswara Rao vs. DCIT (50 Taxmann.com 137) wherein the Court observed that soonafter the transfer of capital asset, the sale consideration has to be taken into consideration for the purpose of assessment, even though payment of consideration is deferred. The Court further observed that consideration in the agreement has to be taken into account for the purpose of assessment of income which cannot be deferred for future date. On the same lines, Hon’ble Karnataka High Court also rendered a judgment, in the case of CIT vs. Ved Prakash Rakhra, wherein the Court observed that the exchange value as specified in the project development agreement can be taken as the basis for computation of capital gains. Following the aforesaid ratios, the A.O. has computed the capital gains at Rs. 23,71,328/- in the case of Smt. Usha Rani and Rs. 24,33,897/- in the case of Smt. Parvathi Devi.
10. Aggrieved by the orders passed by the Assessing Officer, assessees preferred an appeal before the Ld. CIT(A) by contending that though the development agreement was entered into on 12.05.2008, constructed flats were handed over much later, that too in a semi-furnished condition. For about six years, even though the flats are in semi-furnished condition, the flats could not be sold by the assessees and thus capital gains cannot be said to arise in this year though the assessees agreed to offer capital gains to avoid litigation.
11. It was also submitted that the cost incurred by the developer over a period of time cannot be considered for assessment; Since assessees have adopted the SRO rate and arrived at sale consideration the same value ought to have been accepted by the A.O. They have also challenged the correctness of initiating the proceedings u/s 147 of the Act.
12. Ld. CIT(A) rejected the contentions of the assessees on both counts. With regard to initiation of proceedings u/s 147 of the Act he observed that the assessees herein have not filed returns of income and there was a reason to believe that income has escaped assessment which confers jurisdiction upon the A.O. to reopen the assessments. He further observed that when there was no previous assessment, the question of ‘change of opinion’ does not arise.
13. With regard to the value to be adopted by the assessees, Ld. CIT(A) observed that the exchange value as per the registered development agreement was Rs. 1,108/-per sft, which was adopted by the A.O. without taking into consideration the cost incurred by the developer and thus there is no mistake in the computation of the A.O. He also observed that the decision of the Hon’ble jurisdictional High Court in the case of Potla Nageswara Rao vs. DCIT (supra) supports the conclusion reached by the Assessing Officer with regard to the year of levy of capital gains tax. In fact the Court observed that even though the payment of consideration is deferred, capital gains tax arises in the year when the transfer of capital asset is completed. He thus confirmed the orders passed by the A.O.
14. Further Aggrieved, assessees preferred appeals before the Tribunal. Though a specific ground was raised with regard to initiation of proceedings u/s 148 of the Act, no material could be placed, either on law or on facts, to contradict the findings/conclusion of tax authorities. Thus Ld AR restricted his arguments on merits of the addition.
15. It may be noticed that though the builder has entered into similar development agreements with more than 20 land owners (out of which 18 land owners have entered into a common development agreement-cum-GPA), only 2 assessees filed the appeals and no information could be furnished with regard to the status of other land owners.
16. While placing the facts before the Tribunal, Ld Counsel for the assessee submitted that the issue involved in both the appeals is identical and therefore the facts in the case of Smt. Parvathi Devi would be sufficient to dispose of both the appeals. It was submitted that Smt. Parvathi Devi filed the return of income, admitting house property income and agricultural income, on 06.07.2009. Thereafter, on 17.12.2013 notice was issued u/s 148 of the Act. On 25.02.2015 assessee filed revised return of income admitting short term capital gains of Rs. 4,10,550/- wherein the cost of acquisition was taken as Rs. 3,23,700/- which, according to assessee, is the SRO value of land. Ld Counsel for the assessee submits that by virtue of development agreement she is entitled to 50% share of the land developed i.e., 2,845.15 sft and hence the SRO value of the land ought to have been adopted by the A.O. instead of adopting the sale consideration at Rs.1,450/- per sft for the purpose of computing capital gains. In this regard he placed reliance upon the decision of Hon’ble Karnataka High Court in the case of CIT vs. Ved Prakash Rakhra (370 ITR 762) which according to him is applicable to the case on hand. Ld Counsel for the assessee submits that in the aforementioned decision the SRO rate for super structure was directed to be adopted by the Department. A careful perusal of the aforementioned decision shows that the decision is merely rendered upon the issue of date of transfer of property and the indexation value that has to be taken into consideration. In the aforementioned decision though the allotment of the property and handing over of the possession to the assessee took place in the year 1977, the ultimate sale by the assessee in the form of development agreement took place on 06.03.1995. The value as on 01.04.1981 was taken into consideration. Insofar as the fair market value as on the date of sale by the assessee is concerned, no decision was rendered. Nothing appears to have been mentioned with regard to the cost that has to be adopted referable to the property sold by the assessees. However, Ld Counsel for the assessee strongly relied upon the aforecited decision and also contended that the assessee is still entitled to 50% of the value of land and hence it cannot be said that there is sale; with regard to the balance portion of land it can be said to be an exchange. It was also contended that the assessees sold semi-furnished flats in the FY 2013-2014 and hence in the year under consideration no transfer took place.
17. On the other hand, Ld DR relied upon the view taken by the A.O. as well as the Ld. CIT(A) to contend that the issue is squarely covered by the decision of Hon’ble jurisdictional High Court in the case of Potla Nageswararao (supra) wherein it was held that upon transfer of capital asset, sale consideration has to be taken into consideration for the purpose of assessment, even though payment of consideration is deferred till the other assessment year. In other words, the actual sale consideration has to be taken into consideration and not the SRO value. It was also submitted that even as per the assessee, the developer has incurred more expenditure towards construction but having regard to the fact that the transfer took place before the date of construction, the market value as on the date of agreement was taken at Rs. 1,084/-per sft and accordingly assessees were allotted specified constructed area in which event the A.O. as well as the Ld. CIT(A) were justified in adopting the value admitted by assessee as well as developer and thus SRO value cannot be taken into consideration.
18. I have carefully considered the rival submissions and perused the record. I have also carefully perused the development agreement-cum-GPA. The said agreement shows that the builders and developers have to bear all the expenditure for preparation of the said plan, obtaining licenses, permissions as well as execution of work and thereafter the parties / land owners are entitled to 50% of the built up area; This shows that the assessees are merely entitled to a specified constructed space and not 50% of the land. The builders have taken over the possession of the entire land and in lieu thereof assessee was entitled to get only 2845.15 sft. It is also not in dispute that as per the developer, vide letter dated 06.01.2015, cost of construction was Rs. 1,450/- per sft but as per the registered document, for the purpose of allotting the constructed place, the cost of construction is mentioned at Rs. 1,083/- per sft (1,108/- in the case of Smt. Usha Rani) and therefore, A.O. as well as Ld. CIT(A) have taken that figure as the value obtained by the assessee in lieu of transfer of the land. A transfer can be said to have taken place in the year when the possession was handed over by the assessee, as per the decision of Hon’ble jurisdictional High Court (supra). Thus, capital gains tax, if any, is attracted in the year of agreement and not in the later years. Since the developer has agreed to pay the assessee at the rate of Rs. 1,083/- per sft it is not appropriate to claim that only SRO value has to be adopted. If the assessee, purchased a land and the purchase consideration is not provided clearly, SRO value as per the Act as on specified date could have been taken into consideration whereas in the instant case the rate is specified by both the parties. Moreover we are not concerned with purchase cost. Under these circumstances, I am of the firm view that the concurrent findings of the A.O. as well as the Ld. CIT(A) do not call for any interference.
19. In the result, appeals filed by the assessees are dismissed.
Order pronounced in the open court on 20th December, 2017.
