Development Agreement Termination Compensation Deduction allowed to One Co-Owner can’t be denied to Other

Raghuvirsinh Amarsinh Vaghela Vs ITO (ITAT Ahmedabad)

Introduction: In a pivotal case, Raghuvirsinh Amarsinh Vaghela took on the ITO at ITAT Ahmedabad. The primary contention revolved around the legitimacy of a compensation claim arising from the termination of a development agreement. This article delves deep into the facts, analysis, and the ultimate resolution of the matter.

Analysis: The background of the case paints a picture where Raghuvirsinh, along with his brother, owned land. They entered a development agreement with Popular Estate Management Limited. However, the agreement was later terminated, and compensation was paid. The revenue authority made an addition of Rs. 92 lakhs to Raghuvirsinh’s total income, disallowing his claim. Interestingly, a similar compensation claim made by Raghuvirsinh’s brother was allowed as a deduction, bringing the revenue authority’s consistency into question.

The appellant contended that if one co-owner’s claim was admitted, then a similar claim by another co-owner shouldn’t be denied. The case highlighted the significance of consistent decision-making by the revenue authority, especially when dealing with similar cases.

Conclusion: The ITAT Ahmedabad took cognizance of the differing treatments meted out to two similar claims. By referencing previous rulings, the ITAT leaned on the principle of consistent treatment, particularly when the circumstances are similar. The final verdict was in favor of Raghuvirsinh, allowing his appeal and directing the AO to delete the added income. This case underscores the importance of uniform decision-making and offers a guiding precedent for future cases.

FULL TEXT OF THE ORDER OF ITAT AHMEDABAD

The captioned appeal has been filed at the instance of the Assessee against the order of the Learned Commissioner of Income Tax (Appeals), Ahmedabad, (in short “Ld. CIT(A)”) arising in the matter of assessment order passed under s. 143(3) r.w.s. 147 of the Income Tax Act 1961 (here-in-after referred to as “the Act”) relevant to the Assessment Year 2009-10.

2. The interconnected issue raised by the assessee is that the Ld. CIT(A), erred in confirming the addition made by the AO for Rs. 92 lakhs being compensation paid to the party namely Popular Estate Management Limited.

3. The necessary facts are that the assessee in the present case is an individual and drawing his income under the head house property, short term capital gain and other sources. The assessee in the return of income while calculating STCG has claimed the deduction of Rs. 92 lakhs representing the compensation paid to Popular Estate Management Ltd. As per the assessee, he has acquired piece of land along with his brother bearing survey No. 232 admeasuring 57466 Sq mtr. at Mauj village Taluka Sanand, Dist. Ahmedabad. The assessee to develop the land along with his brother has entered into a development agreement with a company namely Popular Estate Management Limited vide agreement dated 18/03/2008, which was subsequently cancelled vide termination agreement dated 27/09/2008. As a result of termination agreement, the assessee had to pay compensation along with his brother to Popular Estate Management Limited amounting to Rs. 1,15,00,000/- only. The share of the assessee was Rs. 82 lakhs and share of the brother of the assessee was Rs. 23 lakhs in the amount of gross compensation. However, the AO in the proceeding u/s 147 of the Act, disallowed the claim of the assessee for Rs. 92 lakhs and added to the total income of the assessee.

4. On appeal by the assessee, the Ld. CIT(A) confirmed the order of the AO.

5.Being aggrieved by the order of the Ld. CIT(A), the assessee is in appeal before us.

6. The Ld. AR before us contended that the compensation paid by the brother of the assessee for Rs. 23 lakhs to the Popular Estate Management Limited was allowed as deduction by the revenue. As such the revenue on the amount of compensation paid to Popular Estate Management Limited has initiated the proceedings against the assessee but allowed the deduction of the same to the brother of the assessee. Thus, it was contended by the Ld. AR that the claim for the compensation in the case of the co-owner was admitted by the revenue and therefore the revenue has taken contrary stand by disallowing the addition in the hand of the assessee.

7. On the other hand, the Ld. DR vehemently supported the order of the authorities below.

8. We have heard the rival contentions of both the parties and perused the materials available on record. There is no dispute to the fact that the claim representing the compensation to Popular Estate Management Ltd. was not disturbed in the case of co-owner, rather the same was admitted by the revenue as genuine. The fact that the co-owner being Shri Balbhada Singh Raghuvir Sinh Vaghela has claimed the deduction of Rs. 23 lacs can be verified from the assessment order in the case of Popular Estate Management Limited, as reproduced here-in-under:

RAGHUVIRSINH AMERSINH VAGHELA

10 & 11, Premuh Drastti,

Opp. Star India Bazar, Satellite, Ahmedabad

PAN : AAFPV9344P

BALBHADASINGH RAGHUVIRSINH VAGHELA

10 & 11, Premuh Drastti,

Opp. Star India Bazar, Satellite, Ahmedabad

PAN : AEFPV9541A

8.1. Thus, we are of the view that that the revenue cannot disturb the claim of the assessee on hand. In holding so we draw support and guidance from the order of the coordinate bench of this tribunal in case of M. Ambalal Desai v. ITO [IT Appeal No. 1870 (AHD.) of 2015, dated 7-1-2021 wherein it was held as under:

“7. We have considered the submission of both the parties and gone through the orders of Lower Authorities carefully. We have also deliberated on various case laws relied by the AR of the assessee. Before us, the AR of the assessee vehemently submitted that in assessee’s co-owner case, the revenue has accepted similar Long Term Capital Gain in the scrutiny assessment. Copy of the assessment order in respect of two co-owners is placed on record. We have noted that no counter to the submission of the assessee, was made by DR that similar Long Term Capital Gain was accepted in case of co-owner.

8. The Hon’ble Madras High Court in ICT v. Kumararani Meenakshi Achi (supra) held that during the same assessment year same quantity of wealth in possession of co-sharer is subjected to a lower rate of taxation, it would be highly improper to burden a similarly situated co-sharer with a higher rate of tax. If such an action on the part of the assessing authorities is sanctioned it would militate against the principle of equality of laws enshrined in Article 14 of the Constitution. By following the same principle, the Co-ordinate Bench of this Tribunal in Chetanbhai Prahladbhai Gami v. ITO in ITA No. 2082/AHD/2013 dated 19-7-2019, the Tribunal granted relief to the assessee holding that while making the assessment of the same property the similar treatment should be granted.

9. We have noted that in assessee’s co-owner’scase with respect to the property against the sale of which the assessee claimed Long Term Capital Gain, the AO in assessee’s co-owner case in Prabhodhchandra Ambelal Desai allowed the similar Long Term CapitalGain by passing the following order:

“3. On perusal of records and details submitted by the assessee it was found that the assessee was co-owner having share of 6.25% in the property sold for Rs. 2,00,00,001/- on 19-1-2009 situated at Survey No. 86, Lunsikui, Navsari. Value ofproperty as per stamp duty valuation was determined at Rs. 4,09,01,000/-. The assessee has not declared capitalgain as he has not filed Return of Income for AY 2009-10 . The said property was inherited by the assessee. The assessee has submitted valuation report of the property from Govt. Approved Valuer who has arrived value ofproperty at Rs. 66,61,020 as on 1-4-1981. The value of the assessee’s share comes to Rs. 4,16,314. Indexed cost as per section 48 of the Act is worked out at Rs. 24,22,947/-. As per stamp duty authority the assessee’s share being 6.25% of sale value in the property comes to Rs. 25,56,310/-. Thus capitalgain comes to Rs. 1,33,363/-, which was taxable in the hands of the assessee. The capitalgain of Rs. 1,33,363 has now been shown by the assessee in the Return of Income filed in response to notice u/s 148 of the Act. However, the assessee has not declared suo moto Long Term CapitalGain as he has not filed return of Income. The assessee has consciously not filed return of income to avoid payment of tax. Therefore, Penalty proceedings u/s. 271(1)(c) of the Act are initiated on this issue for concealment of income.”

10. We have noted that identical worded assessment order was passed in other co-ownercasei.e. Smt. Prabhaben Harshadrai Desai, relevant part of the assessment order is extracted below;:

“3. On perusal of records and details submitted by the assessee it was found that the assessee was co-owner having share of 6.25% in the property sold for Rs. 2,00,00,001/- on 19-1-2009 situated at Survey No. 86, Lunsikui, Navsari. Value ofproperty as per stamp duty valuation was determined at Rs. 4,09,01,000/-. The assessee has not declared capitalgain as he has not filed Return of Income for AY 2009-10. The said property was inherited by the assessee. The assessee has submitted valuation report of the property from Govt. Approved Valuer who has arrived value of property at Rs. 66,61,020 as on 1-4­1981. The value of the assessee’s share comes to Rs. 4,16,314. Indexed cost as per section 48 of the Act is worked out at Rs. 24,22,947/-. As per stamp duty authority the assessee’s share being 6.25% of sale value in the property comes to Rs. 25,56,310/-. Thus capitalgain comes to Rs. 1,33,363/-, which was taxable in the hands of the assessee. The capitalgain of Rs. 1,33,363 has now been shown by the assessee in the Return of Income filed in response to notice u/s 148 of the Act. However, the assessee has not declared suo moto Long Term CapitalGain as he has not filed return of Income. The assessee has consciously not filed return of income to avoid payment of tax. Therefore, Penalty proceedings u/s. 271(1)(c) of the Act are initiated on this issue for concealment of income.”

11. In view of the above aforesaid factual and legal discussion and respectfully following the decision of Madras High Court in Kumararani Meenakshi Achi (supra) and decision of Co-ordinate Bench in Prabhodhchandra Ambelal Desai (supra), the revenue cannot treat the assessee in different way, therefore, the addition to the Long Term CapitalGain added by the AO, confirmed by ld.CIT(A) is deleted. In the result the grounds of appeal raised by the assessee are allowed.”

8.2 In view of the above, we hold that the claim of the assessee cannot be denied for the fact that the claim in the case of co-owner was admitted by the revenue. Accordingly, we set aside the findings of the Ld. CIT(A) and direct the AO to delete the addition made by him. Hence, the ground of appeal of the assessee is allowed.

9. In the result, the appeal filed by the assessee is allowed.

Order pronounced in the Court on 02/08/2023 at Ahmedabad.