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TMI Blog2013 (6) TMI 461X X X X Extracts X X X X X X X X Extracts X X X X ..... o why the assessment should not be revised or set aside. The grounds of proposed revision were as under: "2.1. It was seen from the records that the assessee had entered into a Development Agreement with M/s.Tibrewala Builders on 22/06/2005 for development of the land admeasuring 823.25 sq.yds or 688.78 sq. mts forming part of survey No. 56 to 58, New Municipal No. 1-11-253/2, Motilalnagar, Begumpet, Hyderabad for construction of residential apartments. As per the Development Agreement, the assessee was entitled to 50% of the developed area together with proportionate undivided share of land in the said property. Accordingly, 5 flats (admeasuring 13,265 sft) fell to the share of the assessee, which were sold by her during the previous year 2006-07 i.e. relevant to A.Y.2007-08 for a total consideration of Rs.1,79,00,000/-. Accordingly, the correct computation of Capital Gains would work out as under:- 1 Total plot area as per Development Agreement (Sy.No.56 to 58, 1-11-253/2, Motilalnagar, Begumpet) 823.25 sq. yds 2 Ratio of sharing as per development agreement Between owner and developer 50: 50 3 Total Flats constructed area 26,530 sft 4 Share of owner i.e. 50% 13,265 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erm into one stage calculation of only long-term thereby causing substantial loss / prejudice to the revenue." 04. In response to the show cause notice, none attended on behalf of the assessee, however, the assessee filed written submissions on 12/3/2012, which as extracted by the CIT in his order at pages 3 to 5, are reproduced below: "02. The entire capital gain has been considered and computed by the ITO and on Appeal the CIT(A)-III, Hyderabad enhanced the sale consideration by Rs.36,00,000/- from Rs.l,43,00,000/- to Rs.l,79,00,000 at para S.lof his order in ITA No.01S2/CIT(A)-III/09- 10 dated 24/08/2011. Thus the entire order of the assessing officer has been merged with the CIT(A) order and is therefore not amenable to jurisdiction u/s.263 of the IT Act, 1961. Once a source of income is assessed under one head viz Capital Gains and it is the subject matter of an appeal u/s.246A the order of the assessing officer gets merged with that of the appellate authority and any move to classify the capital gains into long term capital gains and short term capital gains will not confer jurisdiction u/s.263. Therefore it is my submission that the assumption of jurisdiction on the afores ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n (on sale of 50% share in land retained) Rs. 90,00,000 06. It would be interesting to tabulate the capital gains long term capital gains and short term capital gains as assessed and as computed presently. S.No. Narration Computed by Assessing Officer as LTCG Capital gains computed presently Remarks 1. Computation of capital gains (A) 1,18,67,555 64,55,105 Computed as LTCG by Assessing Officer - Rs. 1,18,67,555 2. Enhanced by CIT(A) Rs. 36,00,000 - Please see para 5 written submissions 3. Short term capital gains computed presently (B) 12,450 Please see para 5 written submissions 4. Long term capital gains on sale of 50% of land retained (C) 90,00,000 Please see para 5 written submissions Total 1,54,67,555 A perusal of the above facts and data would show that the total computation of capital gains as long term is the same except for the fact that a small sum of Rs.12,450j- falls to be assessed as short term capital gains. " 5. After considering the submissions of the assessee and examining the material available on record, the CIT held as under: "4.1. This is a case of land development agreement. On 22/06/2005, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to the seller and cost of acquisition to the buyer are two sides of the same coin. Both the parties to the agreement knew as to what was being transferred and what was being received. In the case of exchange, the price of both the assets would be the same. So, when the assesses had agreed to transfer 44% of the land, they must have kept in mind the value of construction of 56% of built-up area. Therefore, the consideration for the transfer of 44% land was the cost of construction of 56% built-up area, which was to be incurred by the builder. That sum would also amount to investment by the assessee in the construction of flats and, therefore, the cost of construction of the flats by the builder would also amount to the cost of acquisition of the flats of the assessee" "As far as cost of flat was concerned it was already observed that it would be equal to the cost of construction of 56% of the built-up area. The reason was obvious. The sale consideration of 44% land was in kind and, therefore, it also amounted to investment in the construction of built-up area. Hence, the same would be taken as cost of acquisition of flats after examining the record of the builder" xxxxxxx "T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or Short Term Capital Gains. The cost of acquisition of the flats has to be the cost of construction of the said flats as per the builder's books as held by the Hon'ble ITAT, Delhi Bench- A in the case of Smt. Vasavi Pratap Chand Vs Dy. Commissioner of Income Tax 89 ITD 73 (2004) as extracted above. Erroneously the assessee has adopted the cost of construction or the value of the constructed area twice in her computation of Short Term Capital Gains i.e. first as the value of 50% land and second as the value of super-structure. Needless to say that this is grossly erroneous and untenable. The assessee's calculation regarding the first stage i.e. Long Term Capital Gains as offered in her written submissions at Rs.64.55 lacs is correct. Erroneously, the assessee has attempted to project Long Term Capital Gains at Rs.1.54 crores as against the correct figure of Rs.64.55 lacs and in this way the assessee has contrived to substantially under calculate the Short Term Capital Gains which is taxable @30% where as the Long Term Capital Gain is taxable at concessional rate of 20%. 4.6. Another objection raised by the assessee is that the assessment order cannot be subjected to 263 proceeding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n view of the aforesaid observations, the CIT held that that the assessment passed is erroneous in so far as it is prejudicial to the interest of the revenue. He, therefore, set-aside the said assessment order with the direction to re-do the same in the light of the aforementioned findings, observations and direction. 7. Aggrieved, the assessee is in appeal before us: "1. The Order of the Commissioner of Income Tax, Andhra Pradesh I, Hyderabad is holding that the Assessment Order passed on 24.12.2009 by I T 0, Ward 8(1), Hyderabad is erroneous and prejudicial to the interests of Revenue is totally contrary to the facts and evidence on record and is therefore wholly unsustainable both on facts in Law. 2. The learned Commissioner of Income Tax - IV, Hyderabad, on a wrong foundation of reasoning arising out of a fundamental misconception of facts came to a totally wrong and erroneous conclusion that the Order passed by the I TO, Ward 8(1), Hyderabad, on 24.12.2009 u/s.143(3) of the Income Tax Act 1961 was erroneous and prejudicial to the Interest of Revenue and therefore must be quashed. 3. The learned Commissioner of Income Tax - IV, Hyderabad, failed to note that the I TO, Ward ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red the issue of capital gain on sale of flats arising out of the development agreement entered into by the assessee with developer,therefore invoking of jurisdiction u/s 263 is totally untenable. It was submitted that the Assessing Officer has not only made enquiry with regard to the capital gain but has also applied his mind to all the facts and materials such as the development agreement and other evidences brought on record. It was submitted that only because the view adopted by the Assessing Officer is not acceptable to the CIT, the assessment order neither becomes erroneous nor prejudicial to the interests of the revenue. It was further submitted that the issue of capital gain arising out of sale of flats was not only considered by the Assessing Officer but was also subject matter of appeal before the CIT(A) and the CIT(A) having passed an order on the issue, the assessment order has merged with the first appellate authority and cannot be revised by exercising power u/s 263 of the IT Act. It was submitted that the Assessing Officer after considering all the facets of the issue of capital gain arising out of the sale of flats having adopted a view, it cannot be considered to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d for capital gain on total consideration received of Rs. 1,79,00,000/-. Thus, as can be seen from the above narration of facts, the whole issue of capital gain arising out of the development agreement as well as sale invoking of flats was not only considered by the Assessing Officer while completing the assessment u/s 143(3) of the Act but was also subject matter of appeal before the CIT(A). Further, it is quite evident from the assessment order passed that the Assessing Officer has not only enquired into the issue and applied his mind to the facts and materials on record but has also dealt with the issue of capital gain in the assessment order. Therefore, it cannot be said that there is non-application of mind by the Assessing Officer. As would be evident from the order passed u/s 263 by the CIT, he has come to hold the view taken by the Assessing Officer to be erroneous as according to him capital gain should have been computed at two stages. The CIT has formed such an opinion on the basis of a decision of the Income-tax Appellate Tribunal, Delhi Bench in the case of Smt. Vasavi Pratap V/s. CIT 89 ITD 73. the It is a settled principle of law that power u/s 263 can be exercised o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 24/08/2011 has held as under: "8. Thus, though partly allowing the claim of the appellant for considering the total sale consideration of Rs. 1,79,00,000/- for determining long term capital gain in the AY 2007-08, in the net result in this appeal, the income of the appellant shall be enhanced by an amount of Rs. 36,00,000/-." 12. As can be seen from the aforesaid finding of the CIT(A) there is a specific direction to the Assessing Officer to consider the entire sale consideration of Rs. 1,79,00,000/- for determining the long term capital gain in the assessment year under dispute. The Hon'ble Supreme Court in case of CIT V/s. Shri Arbuda Mills Ltd., 231 ITR 50 has held that the power u/s 263 of the Act shall extend and shall be deemed always to have extended to such matters as had not been considered and decided in an appeal. Following the aforesaid decision of the Hon'ble Supreme Court, the Hon'ble AP High Court in case of CIT V/s. New Srinivasa Construction Co., 236 ITR 503 has laid down the principle that only the untouched parts of the assessment order, which did not fall for consideration before the CIT(A) are still open to the CIT to revise u/s 263 of the Act. Thus, conside ..... X X X X Extracts X X X X X X X X Extracts X X X X
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