Case Law Details
Bhausaheb Sopanrao Bhoir Vs ITO (ITAT Pune)
ITAT Pune held that as per third proviso to section 56(2)(vii)(b), where the stamp value of the immovable property is disputed by the assessee on the ground mentioned in section 50C(2), the AO may refer the valuation of such property to the Valuation Officer. Accordingly, matter remanded.
Facts- The case of the assessee was selected on the basis of AIR information about the assessee having made large investment in property as compared to total income.
AO observed from the AIR information that the assessee, along with other co-owners, entered into a development agreement for a consideration of Rs.10,31,78,154/-. The agreement was for transfer of their rights in the land in lieu of receiving constructed area in the developed property. Since the assessee had not declared any capital gain on such transaction of transfer of right in the land to the developer, the assessee was called upon to explain as to why income u/s.45 of the Act be not computed.
AO did not accept the assessee’s contention on the ground that the development agreement executed on 22-01-2016 was duly registered on 25-01-2016 after paying due stamp duty. Considering the assessee’s share at 1/3rd and no further detail coming to highlight the cost of acquisition, the AO treated the assessee’s share of 1/3rd of stamp value at Rs.3,43,92,718/- as capital gain. CIT(A) did not provide any relief, against which the assessee has come up in appeal before the Tribunal.
Conclusion- The third proviso to section 56(2)(vii)(b) provides that where the stamp value of the immovable property is disputed by the assessee on the ground mentioned in section 50C(2), the AO may refer the valuation of such property to the Valuation Officer. The word `may’ in such provision has been interpreted as `shall’ in many cases, making it mandatory on the part of the AO to make a reference to the DVO, where the assessee asserts that the stamp value is excessive. The additional ground raised before the ld. CIT(A) in this regard has remained undisposed off, which in our considered opinion, is not correct. Going with the mandate of the third proviso to section 56(2)(vii)(b), we are of the considered opinion that it would be in the fitness of things if the impugned order on this score is set aside and the matter is remitted to the file of the AO for making a reference to the Departmental Valuation Officer for determining the value of the property afresh. It is thereafter that the computation of capital gain will be done by the AO after allowing a reasonable opportunity of hearing to the assessee.
FULL TEXT OF THE ORDER OF ITAT PUNE
This appeal by the assessee is directed against the order dated 29-11-2022 passed by the CIT(A) in National Faceless Appeal Centre (NFAC) u/s.250 of the Income-tax Act, 1961 (hereinafter also called ‘the Act’) in relation to the assessment year 2016-17.
2. The first issue raised in this appeal is against the confirmation of addition of Rs.3,43,92,718/-.
3. Briefly stated, the facts of the case are that the case of the assessee was selected on the basis of AIR information about the assessee having made large investment in property as compared to total income. The Assessing Officer (AO) observed from the AIR information that the assessee, along with other co-owners, entered into a development agreement with M/s. Kunal Realty on 22-01-2016 for a consideration of Rs.10,31,78,154/- in respect of land situated at Gat No.164, Hissa No.6, Chinchwad. The agreement was for transfer of their rights in the land in lieu of receiving constructed area in the developed property. Since the assessee had not declared any capital gain on such transaction of transfer of right in the land to the developer, the assessee was called upon to explain as to why income u/s.45 of the Act be not computed. The assessee denied any liability towards capital gains by submitting that though the Agreement was entered into with M/s. Kunal Realty but there was some internal problem as a result of which the transaction could not materialize. It was further stated that possession of the land was still with him. The AO did not accept the assessee’s contention on the ground that the development agreement executed on 22-01-2016 was duly registered on 25-01-2016 after paying due stamp duty. Considering the assessee’s share at 1/3rd and no further detail coming to highlight the cost of acquisition, the AO treated the assessee’s share of 1/3rd of stamp value at Rs.3,43,92,718/- as capital gain. The ld. CIT(A) did not provide any relief, against which the assessee has come up in appeal before the Tribunal.
4. Having heard the rival submissions and perused the relevant material on record, it is found as an admitted position that the assessee, along with other co-owners, entered into development agreement with M/s. Kunal Realty on 22-01-2016. This agreement was duly registered with stamp value of Rs.10.31 crore on which stamp duty of Rs.61,93,000/- and registration fees of Rs.30,380/-was paid by M/s. Kunal Realty. A copy of the registered agreement has been placed at page 7 onwards of the paper book. This agreement, whose English translation has been provided at page 198 onwards of the paper book, provides through clause (EE) of the preamble that the Vendors had obtained Industrial Exemption order from Hon’ble Saha Sanchalak Udyog and Vice Secretary Government of Maharashtra in accordance with Urban Land (Ceiling and Regulation) Act for the first time in year 1986 but in the year 2001, the entire land was declared as non-vacant land. However, in other rights column of 7/12 extract, a remark has been given “said property is entitled for exemption order” but the Vendors needs to get deleted said remark within three months. Clause (F) of the preamble further refers to encroachments on the said property on account of use by the third persons, which were to be taken back. It also provided that if any area was required to be given to the Trespassers, or third persons against compromise with them, then the complete responsibility of the same was that of the vendor no. 2(i.e. the assessee). Clause 6.2.1 of the registered development agreement provides that : “The said Developer shall do construction for the vendor on the said property according to the sanctioned plans….. The aforesaid agreed consideration in the nature of final constructed unit has to be given to the Vendors only on the complete fulfillment of conditions mentioned in para 1 and 2 herein above”. Clause 6.2.3 of the agreement further states that: `the said construction shall be started within three months and shall be completed within 36 months of registering the development agreement similarly cancelling the remark of ‘Entitled for exemption order under Urban Land (Ceiling and Regulations) Act, sanctioning of the plans of the proposed building, obtaining the permission of Non Agricultural Usage.’ Clause 8.1.7 of the agreement further states that: “In case of any objection regarding the ownership and possession of the said property, its entire responsibility with cost and consequences thereof shall be our’s. We fully indemnify and keep indemnified the developer in such case and till complete clearance of such objection, we will not ask for any consideration either in cash or kind and it will not become due”.
5. A perusal of the above clauses of the registered development agreement clearly indicates that the assessee along with other co-owners transferred development rights of the land to M/s. Kunal Realty. It was the obligation of the assessee to get the proper clearances and do the needful qua 7/12 extract and also in respect of exemption order. It is also clear that the developer agreed to discharge consideration in the nature of giving finally constructed units only on the complete fulfillment of the above conditions. The ld. AR contended that no possession of land took place pursuant to the development agreement because the above conditions could not be fulfilled by the assessee.
6. At this stage, it is pertinent to note that M/s. Kunal Realty deposited a sum of Rs.1.54 crore in the office of Senior Divisional Electrical Engineer towards estimated cost of work of shifting 110 KV tower line in respect of the property under consideration. On one hand M/s. Kunal Realty paid Rs.1.54 crore to Electricity department and also stamp duty of Rs.61.93 lakh at the time of registration of the transfer of development agreement, on the other hand, there is a claim by the assessee that the possession of the said land was and has not been transferred to M/s. Kunal Realty. A confirmation letter dated 20-05-2023 from M/s. Kunal Realty has been placed on record as per which the possession of land was still not transferred because of encroachment by school and other few parties not having been cleared. It further states that the development activities on this land have not been started. On a specific query, the ld. AR admitted that Kunal Property has not taken up any civil proceedings against the assessee for recovery of the amounts spent or cancellation of the agreement.
7. The mere fact that the `possession’ has not been transferred cannot be decisive as to the `transfer’ inasmuch as there can be a transfer of an encumbered property as well resulting into liability towards capital gains. If a buyer purchases an encumbered property and takes upon himself the task of removing the encumbrances, it will still amount to transfer. On the other hand, if the transfer of an encumbered property has an obligation attached with the seller to remove the encumbrances, then one needs to see the consequences of such non-removal. If the agreement provides for non-removal of the obligations leading to cancellation of the agreement of transfer after a certain time frame, then the transfer will not take place till the encumbrances are removed within the stipulated time frame. If the consequences are that the seller will pay some damages as a quid pro quo of non-removal, then the transfer will not be impacted at that stage itself. This deciphers that `transfer’ does not depend on handing over per se `possession’ or non-possession.
8. The ld. AR also placed on record an English Translation of certain pages of a petition filed by the assessee’s sister against M/s. Kunal Realty staking claim in the said property. That is also in the shape of additional evidence.
9. On one hand, there are circumstances to suggest that the development rights were transferred by the assessee in respect of the land, on the other hand, there are certain other circumstances suggesting to the contrary. At any rate, there has to be some stage of transfer, if the deal is not called off, as is the case under consideration. Since the additional evidences have been placed on record for the first time and have some bearing on the issue, we are of the considered opinion that it would be just and fair if the impugned order is set aside and the matter is restored to the file of the AO. We order accordingly and direct him to decide this issue afresh in the light of additional evidences which the assessee has placed on record. Needless to say, the assessee will have liberty to lead any further evidence in his defence and be allowed reasonable opportunity of hearing in the fresh proceedings.
10. The only other ground pressed in this appeal is against the confirmation of addition of Rs.4,95,37,200/- made by the AO by invoking provisions of section 56(2)(vii)(b) of the Act.
11. The facts anent to this issue are that the assessee furnished a copy of Sathekhat (Sale deed) registered with Joint Sub Registrar, Haveli-17. As per this Sathekhat, the assessee purchased a piece of land at Sy.No.24, Balewadi, Haveli, Pune for a consideration of Rs.1.85 crore. Circle rate of the land was Rs.6,80,37,200/-. The AO observed that immediately after entering into agreement for purchase, the assessee also entered into simultaneous agreement to sell the same property to one Mr. Ravindra N. Sakla, as per the terms of which Mr. Sakla paid a part consideration to the sellers of the assessee. The assessee was called upon to explain as to why the provisions of section 56(2)(vii)(b) of the Act be not invoked in respect of the difference between the stamp value and declared consideration in sale (Sathekhat) executed through registered deed. The assessee submitted that the purchase was not complete. The AO observed that after the purchase of land, the assessee entered into an agreement to sell the same and hence the assessee’s claim that the purchase was not complete, was wrong. He invoked the provisions of section 56(2)(vii)(b) of the Act and added a sum of Rs.4,95,37,200/-, being, the difference between circle rate of the land and the declared consideration of Rs.1,85,00,000/-. No relief was allowed in the first appeal.
12. After considering the rival submissions and perusing the relevant material on record, it is observed that the assessee did purchase the land at Survey No.24, Balewadi, Haveli, Pune through a registered sale deed in the month of July, 2015. The contention of the ld. AR that the parties, who sold the land to the assessee, were not the real owners, in our considered opinion, does not carry any force because agreement to sale cannot be registered with non-owners as the sellers. Since in this case, a registered agreement to sale has been executed between the assessee and the sellers with the photographs and thumb impressions of all the parties properly placed thereon, we cannot accept the contention that the parties shown as sellers were not the real owners. But for such persons being owners, no sale deed could have been registered. A copy of the registered agreement to sale has been placed on record at page 30 onwards of the paper book, which clearly indicates the payment of registration fees at Rs.30,380/- with payment of stamp due on the stamp value of the property at Rs.6,80,37,200/- as against the declared purchase consideration of Rs.1.85 crore. The fact that the land was actually purchased from the true legal owners is further corroborated by the fact that the assessee simultaneously agreed to sell the same property to another person on the same day itself. All these facts clearly establish that the assessee did purchase the land at Balewadi at the declared consideration of Rs.1.85 crore. Section 56(2)(vii)(b) is patently attracted in this case as per which the difference between the stamp value and the declared purchase consideration is liable to be added in the hands of the assessee.
13. The ld. AR invited our attention towards the additional ground raised before the ld. CIT(A), as has been reproduced at page 3 of the impugned order, challenging the making of addition u/s. 56(2)(vii)(b) without making a reference to the Department Valuation Officer as required by the proviso after sub-clause (c) of section 56(2)(vii)(b). This shows that the assessee did raise the issue before the ld. CIT(A) about the stamp value of the property at this high level and hence the necessity to make a reference to the DVO. It further goes without saying that first appeal is a continuation of the assessment proceedings. The third proviso to section 56(2)(vii)(b) provides that where the stamp value of the immovable property is disputed by the assessee on the ground mentioned in section 50C(2), the AO may refer the valuation of such property to the Valuation Officer. The word `may’ in such provision has been interpreted as `shall’ in many cases, making it mandatory on the part of the AO to make a reference to the DVO, where the assessee asserts that the stamp value is excessive. The additional ground raised before the ld. CIT(A) in this regard has remained undisposed off, which in our considered opinion, is not correct. Going with the mandate of the third proviso to section 56(2)(vii)(b), we are of the considered opinion that it would be in the fitness of things if the impugned order on this score is set aside and the matter is remitted to the file of the AO for making a reference to the Departmental Valuation Officer for determining the value of the property afresh. It is thereafter that the computation of capital gain will be done by the AO after allowing a reasonable opportunity of hearing to the assessee.
14. At this stage, it is relevant to mention that the assessee has raised an additional alternative ground contending that deduction of cost of acquisition should be given in the computation of the capital gain. It is seen that the AO computed capital gain at the gross value of stamp value without allowing any deduction towards cost of acquisition and cost of improvement etc. It is axiomatic that capital gain does not refer to taxing the gross receipt. Section 48 of the Act clearly provides the mechanism for computation of capital gain by stating that cost of acquisition of the asset and cost of any improvement should be reduced from the full value of consideration, in addition to the expenditure incurred wholly and exclusively in relation to the transfer. It is, therefore, directed that while computing the capital gain in the hue of the above observations, the AO shall also grant deduction towards cost of acquisition etc. of the asset.
15. In the result, the appeal is allowed for statistical purposes.
Order pronounced in the Open Court on 30th May, 2023.
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