Case Law Details

Case Name : Shri Doddapaneni Atchaiah Tenali Vs Asstt. Commissioner of Income Tax (ITAT Hyderabad)
Appeal Number : ITA No.1553/Hyd/2016
Date of Judgement/Order : 28/02/2018
Related Assessment Year : 2009-10
Courts : All ITAT (7635) ITAT Hyderabad (386)

Shri Doddapaneni Atchaiah Tenali Vs ACIT (ITAT Hyderabad)

Learned Counsel for the assessee submitted that the assessee has purchased Plot No.109/B vide registered sale deed No.6621/2003 dated 18.09.2003 and also Plot No.109/C vide registered sale deed No.6622/2003 dated 18.09.2003 from one Mr. G. Bala Swamy. He drew our attention to the recitals in the sale deed according to which the vendor has submitted a proposed layout for development of residential plots in the said land of Acres 03-20 Guntas to HUDA vide No.17641/MP2/HUDA/ 01 dated 9.8.2001 and the sanction of the layout at HUDA is under process. He submitted that the unapproved plots were sold to the assessee and the assessee was put in possession of the land as is mentioned in the registered sale deed. He submitted that the HUDA layout as proposed by Shri Bala Swamy was not approved and he had gifted the entire land to his son, Shri G. Srikant, who ultimately got the HUDA layout approved and the sale deeds executed in favour of the assessee in the year 2003 were unilaterally cancelled and fresh sale deeds were executed on 9.9.2006. He submitted that the assessee had paid the entire sale consideration for the plot to the vendor in the year 2003 itself, and has not paid any further sale consideration in the year 2006. He also drew our attention to the recitals in the sale deed dated 9.9.2006, wherein the earlier registered sale deed and the cancellation thereof and the circumstances under which the two sale deeds are executed are mentioned. Therefore, according to him, the assessee has purchased the asset in the year 2003 itself and due to the difficulties faced by the vendor in getting HUDA layout approved, it has necessitated the cancellation of the earlier deed and registration of the fresh sale deed, but it does not mean that the assessee has purchased the plot only in the year 2006. He has also drawn our attention to the schedule of the property mentioned in the sale deeds of both 2003 and 2006, to demonstrate that the piece of land, though the Plot Nos have changed, is the same. Therefore, according to him, the asset is a long term asset and therefore, the gains from the development agreement being, long term capital gain, is also eligible for exemption u/s 54F of the Act in respect of the flats received by him by virtue of the development agreement. In support of his contention that the sale deed has been executed by Mr. Bala Swamy and the circumstances under which they were cancelled and re-registered by Shri G. Srikant to the assessee, he filed affidavit of Shri G. Bala Swamy and prayed that, it be admitted as an additional evidence and considered for adjudication of the matter.

We find that the cancellation deed is a unilateral document without the assessee being made a party to it and is also in contradiction to the registered sale deed dated 18.09.2003 wherein it has been mentioned that the possession has already been handed over to the assessee. Therefore, the recitals in the unilateral cancellation deed alone, cannot be taken as evidence for holding that the possession of property has been delivered to the assessee only in the year 2006. Therefore, without going into the affidavit of Shri Bala Swamy, which has been filed as an additional evidence, we are inclined to accept the contention of the assessee that he has purchased the property in the year 2003 and therefore, the property is a long term capital asset and the gain arising from transfer thereof is LTCG. Since the gain on entering into the development agreement is LTCG, the assessee is also eligible for the claim of exemption u/s 54F of the Act.

FULL TEXT OF THE ITAT ORDER IS AS FOLLOWS:-

This is assessee’s appeal for the A.Y 2009-10. In this appeal, the assessee is aggrieved by the order of the learned CIT (A)-V, Hyderabad, dated 31/08/2016 confirming the assessment order u/s 143(3) r.w.s. 147 of the I.T. Act dated 4.3.2015. The assessee has raised the following grounds of appeal:

1. The order of the learned Commissioner of Income-tax (Appeals) is erroneous in law and on the facts of the case.

2. The learned Commissioner of Income-tax (Appeals) failed appreciate that the appellant acquired title to the property by deeds of registration dated 18th September, 2003 as against the deeds of registration dated 09th September, 2006.

3. The learned CIT(A) erred in law in treating the unilateral deed of cancellation registered on 09th September, 2006 by the sellers as legally sustainable document ignoring the specific note given by the sub-registrar in such deed itself, that the same was void-ab-initio.

4. The learned Commissioner of Income-tax (Appeals) erred on facts and law by treating the asset subjected to development agreement as short term capital asset instead of treating the same as long term capital asset despite the period of holding of the asset was more than 36 months as factually evidenced by the documents produced.

5. The learned Commissioner of Income-tax (Appeals) ought to have ignored the deed dated 09th September, 2006 as the same was executed only to perfect the title coming to the appellant through the earlier deed dated 18th September, 2003 and thus erred in considering the date of acquisition as 09th September, 2006.

6. The learned Commissioner of Income-tax (Appeals) to have considered that there was no fresh or additional consideration paid in 2006 as against the original amount paid in 2003, proving that the later transaction is not a separate and independent one.

7. The learned Commissioner of Income-tax (Appeals) erred in law denying the benefit of deduction under section 54F to the appellant, with respect to the gain arising from the transfer of long term capital asset by wrongly considering the same as short term capital asset.

8. The learned Commissioner of Income-tax (Appeals) ought not to have denied the cost of acquisition of Rs.20,56,480/-claimed by the appellant and thus erred in confirming the cost adopted by the learned Assessing Officer amounting to Rs.18,49,660.

9. The learned Commissioner of Income-tax (Appeals) erred in facts in adopting the composite rate per square feet as the rate per construction. He ought to have considered that the composite rate includes cost of site also. Since the appellant has not transferred his share of site, the inclusion of cost of site in the square feet rate amounts to double addition.

10. Any other ground of appeal that may be pleaded with the prior approval by the Hon’ble Tribunal during the course of appellate proceedings.

The appellant craves leave to add to, amend or modify the above grounds of appeal either before or at the time of hearing of the appeal, if considered necessary”.

2. Brief facts of the case are that the assessee, an individual and a pensioner did not file his return of income. The AO got the information that the assessee is one of the land owners who have entered into a development agreement with M/s Diamond Infra for the development of his land situated at Survey No.145 (Part), Hydernagar Village, Balanagar, Kukatapalli Municipality, Ranga Reddy District, admeasuring 1001.00 sq. yards vide development agreement dated 12.05.2008. Observing that the capital gains has arisen to the assessee by virtue of the development agreement and the same has escaped assessment and is to be brought to tax, the AO issued a notice u/s 147 of the Act dated 17.12.2003 and the same was served on the assessee. The assessee filed his return of income along with a note for the A.Y 2009-10 dated 16.02.2015 admitting income of Rs.1,69,290 being the income from pension and other sources. Thereafter, the AO issued notices u/s 143(2) and 142(1) of the Act and the assessee furnished the required evidence.

3. After considering the information furnished by the assessee, the AO observed that the assessee has entered into a Development Agreement-cum-GPA with M/s Diamond Infra for development of his land of 1001.00 sq. yards bearing Plot No.25, Survey No.145/2, Hydernagar Village, Balanagar Mandal, R.R. District registered on 12.05.2008. He observed that as per this development agreement, the assessee was to get 10406.54 sft. developed area (in the form of seven flats) in lieu of the land handed over by him to the developer. The AO observed that the assessee has purchased the Plot No.25 on 9.9.2006 vide registered sale deed No.18410/2006. When questioned about the incidence of capital gain arising out of the development agreement, the assessee submitted that he has not received any developed area from the builder inspite of the expiry of the time limit of 36 months and the grace period of 06 months thereafter and since no developed area as agreed upon in the development agreement was received by the assessee, the assessee claimed that there is no transfer of property under the provisions of section 53A of the Transfer of Property Act. Further, without prejudice to the above contention, the assessee also made an alternate plea that he has purchased the land, in question, in the year 2003 vide registered sale deed No.6621/2003 and 6622/2003 dated 18.09.2003 and therefore, the gains arising out of the development agreement is Long Term Capital Gain and since the assessee is receiving residential flats as consideration, the LTCG is exempt u/s 54F of the Act. Accordingly, he produced copies of the purchase deeds of the plot of land. The AO considered that the assessee has purchased Plot No.25 which has been given for development, vide registered sale deed No.18410/2006 dated 9.9.2006, whereas in the earlier registered sale deeds dated 18.09.2003, the Plot No. mentioned was 109B in Survey No.145(P) and Plot No.109/C in Survey No.145. He also observed from the recitals from the sale deed that the earlier sale deeds were cancelled and that no possession was given to the assessee by virtue of those sale deeds registered in 2003 and that the possession was handed over to the assessee only in 2006. Therefore, he held that the asset has been held for a Short Term only and the resultant claim is STCG. He also observed that in view of the fact that development agreement is entered on 12.05.2008 and the developer has been given the possession of the property, the capital gain has arisen in the relevant A.Y for the land transferred by the assessee to the developer.

4. Thereafter, he proceeded to consider the assessee’s claim of deduction u/s 54F of the Act and holding that the gain is short term capital gain, he held that the assessee is not eligible to claim exemption u/s 54F of the Act. He also considered the cost of acquisition of the land as per the purchase deed entered on 9.9.2006 to be at Rs.14,89,200 and after including the registration charges of Rs.3,60,460, he adopted the cost of acquisition at Rs.18,49,660. As regards the estimation of sale consideration in the hands of the assessee, the AO considered the value of the construction as mentioned in the registered development agreement dated 12.05.2008 i.e. at Rs.1096 per sft. and adopted the same for computation of the Short Term Capital Gains. Accordingly, he computed the taxable income of the assessee against which, the assessee preferred an appeal before the CIT (A), who confirmed the order of the AO and the assessee is in second appeal before us.

5. The learned Counsel for the assessee submitted that the assessee has purchased Plot No.109/B vide registered sale deed No.6621/2003 dated 18.09.2003 and also Plot No.109/C vide registered sale deed No.6622/2003 dated 18.09.2003 from one Mr. G. Bala Swamy. He drew our attention to the recitals in the sale deed according to which the vendor has submitted a proposed layout for development of residential plots in the said land of Acres 03-20 Guntas to HUDA vide No.17641/MP2/HUDA/ 01 dated 9.8.2001 and the sanction of the layout at HUDA is under process. He submitted that the unapproved plots were sold to the assessee and the assessee was put in possession of the land as is mentioned in the registered sale deed. He submitted that the HUDA layout as proposed by Shri Bala Swamy was not approved and he had gifted the entire land to his son, Shri G. Srikant, who ultimately got the HUDA layout approved and the sale deeds executed in favour of the assessee in the year 2003 were unilaterally cancelled and fresh sale deeds were executed on 9.9.2006. He submitted that the assessee had paid the entire sale consideration for the plot to the vendor in the year 2003 itself, and has not paid any further sale consideration in the year 2006. He also drew our attention to the recitals in the sale deed dated 9.9.2006, wherein the earlier registered sale deed and the cancellation thereof and the circumstances under which the two sale deeds are executed are mentioned. Therefore, according to him, the assessee has purchased the asset in the year 2003 itself and due to the difficulties faced by the vendor in getting HUDA layout approved, it has necessitated the cancellation of the earlier deed and registration of the fresh sale deed, but it does not mean that the assessee has purchased the plot only in the year 2006. He has also drawn our attention to the schedule of the property mentioned in the sale deeds of both 2003 and 2006, to demonstrate that the piece of land, though the Plot Nos have changed, is the same. Therefore, according to him, the asset is a long term asset and therefore, the gains from the development agreement being, long term capital gain, is also eligible for exemption u/s 54F of the Act in respect of the flats received by him by virtue of the development agreement. In support of his contention that the sale deed has been executed by Mr. Bala Swamy and the circumstances under which they were cancelled and re-registered by Shri G. Srikant to the assessee, he filed affidavit of Shri G. Bala Swamy and prayed that, it be admitted as an additional evidence and considered for adjudication of the matter.

6. The learned DR, however, opposed the admission of the additional evidence and also relied upon the orders of the authorities below. She also drew our attention to the recitals in the cancellation deed wherein it is mentioned that the vendor was in possession of the property till the registered sale deeds were cancelled. Therefore, according to him, the gain arising to the assessee is short term capital gain and the assessee is not eligible for the claim u/s 54F of the Act for the reasons mentioned by the AO and confirmed by the CIT (A).

7. Having regard to the rival contentions and the material on record, we find that the property purchased by the assessee in the year 2003 vide registered sale deed No.6621/2003 is Plot No.109/B and admeasuring 1001 sq. yards. The plan showing the plot No.109/B and the schedule thereto is as under:

SCHEDULE QF THE PRQPERTY

ALL THAT the Plot bearing NOll~9/B, in Survey Not 145 (part) admeasuring 1001.0 square yards or 836.84 sq.mtrs, in the proposed Layout to HUDA for development of residential plots in “DIAMOND HILLS Extension” Situated at HYDERNAGAR VILLAGE, Balanagar Mandal, Kukatpally Municipality, Ranga Reddy District, S.R.O. Kukatpally, and bounded as follow:-

NORTH : NEIGHBOURS LAND

IN : SURVEY NOl145 (P).

SOUTH : PLOT NOS:109/A & 109/C.

EAST :          40′-0″ WIDE ROAD,

HILLS PARK, SURVEY I NO: 145.

WEST : CBCID Colony, SY.NO.I145 (P)”.

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8. Further, vide sale deed No.18410 of 2006, the assessee has purchased Plot No.25 admeasuring 1001 sq. yards of land for a total consideration of Rs.14,89,200 and the schedule of this plot and plan are as under:

Image 2

Image 3

9. On a comparison of these two documents, it clearly emerges that except for the change in plot No. there is no change in the measurements or area or the boundaries of the plot. Thus, we find force in the argument of the learned Counsel for the assessee, that the same plot has been re-registered to the assessee after unilaterally cancelling the earlier document and the circumstances have clearly been mentioned in the cancellation deed as well as the subsequent sale deed and this is the property which has been given for development by the assessee. Since the cancellation and the re-registration of the property is not for any reason attributable to the assessee and the facts and circumstances are beyond the control of the assessee, it cannot be imputed that the assessee has not purchased the property in the year 2003.

10. The reliance of the learned DR is on the recitals in the cancellation deed that the possession of the property was in the hands of the vendor. However, we find that the cancellation deed is a unilateral document without the assessee being made a party to it and is also in contradiction to the registered sale deed dated 18.09.2003 wherein it has been mentioned that the possession has already been handed over to the assessee. Therefore, the recitals in the unilateral cancellation deed alone, cannot be taken as evidence for holding that the possession of property has been delivered to the assessee only in the year 2006. Therefore, without going into the affidavit of Shri Bala Swamy, which has been filed as an additional evidence, we are inclined to accept the contention of the assessee that he has purchased the property in the year 2003 and therefore, the property is a long term capital asset and the gain arising from transfer thereof is LTCG. Since the gain on entering into the development agreement is LTCG, the assessee is also eligible for the claim of exemption u/s 54F of the Act. However, since neither the AO nor the CIT (A) have gone into the claim of section 54F, we deem it fit and proper to remand the issue to the file of the AO for considering the claim of the assessee u/s 54F of the Act.

11. As regards the computation of capital gains arising on account of the joint development agreement, we find that the assessee has included the stamp duty paid by him in both the years 2003 and 2006, in the cost of acquisition, whereas the AO and the CIT (A) have adopted only the stamp duty and other expenses paid by the assessee in the year 2006 as part of cost of acquisition. Since we have already held that the cancellation and re-registration of the property is not due to any fault of the assessee but due to the facts and circumstances prevailing at the relevant point of time, we agree with the learned Counsel for the assessee’s argument that both the expenses are part of the cost of acquisition and should be allowed while computing the LTCG. The AO is directed accordingly.

12. As regards the estimation of sale consideration, we find that on account of land transferred under the development agreement, it is the case of the assessee that the AO has adopted the cost of construction mentioned in the development agreement and not the actual cost incurred by the Builder for the construction of the flats. He submitted that the sale consideration to the assessee is the cost incurred by the Builder and not only the value mentioned in the development agreement, particularly since in this case, the development could not be completed within the stipulated period of the development agreement. We find that the AO had called for information from the Developer who had reported that due to delay in completion of the project, the cost of construction was 1450 sft. The AO has considered that the delay in completion of the project was not attributable to the assessee and therefore, the cost arrived at and mentioned in the registered development dated 12.05.2008 was the exchange value and is to be adopted as such. We agree with this finding of the AO. Admittedly, the assessee has received the built-up area in the subsequent A.Y and the delay in completion of the project was not due to any reason attributable to the assessee. Therefore, the AO has correctly adopted Rs.1096 as mentioned in the development agreement as sale consideration received by the assessee.

13. In the result, assessee’s appeal is partly allowed.

Order pronounced in the Open Court on 28th February, 2018.

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