TMI Blog2014 (12) TMI 301X X X X Extracts X X X X X X X X Extracts X X X X ..... does not arise - there is no other documentary evidence brought on record which could conclusively prove that the property stands transferred to the vendee during the relevant PY - the inference drawn by AO that assessee has sold the property resulting in capital gain cannot be upheld - though in one of the grounds the department has raised the issue of consideration of fresh evidence in violation of rule 46A by CIT(A) but at the time of hearing neither the revenue made any substantive argument on this issue or brought to our notice the exact nature of evidences considered by CIT(A) in violation of rule 46A - the claim of the department that CIT(A) has considered fresh evidence in violation of rule 46A cannot be entertained – Decided against revenue. Addition of capital gain on sale of land at Kistareddypet – Held that:- AO has rejected assessee's claim of exemption from capital gain on sale of land by simply observing that assessee has not brought any evidence to show that the land is situated beyond eight kilometers from the limit of nearest municipality - not only the land is classified as agricultural land but it is beyond eight kilometers from the limits of nearest notifie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the basis of material on record – Decided against revenue. Allowability of claim of exemption u/s 54F – Held that:- AO has rejected assessee's claim u/s 54F for the reason that the building having been let out to an educational institution for use as a students hostel, hence, is a commercial property - CIT(A) was of the view that as the building is used as a dwelling unit for students and is having facilities for sleeping, cooking, dining etc., it is a residential house and as such assessee is entitled for deduction u/s 54F - neither AO nor CIT(A) have examined the primary facts before coming to their conclusion - AO was not justified in rejecting assessee's claim by simply observing that as the building is used as a hostel it is commercial property - the finding of CIT(A) is also conflicting and contradictory - the nature of a property whether residential or commercial cannot be determined by solely applying the user test - in the absence of the basic facts, the exact nature of property constructed and assessee's eligibility to section 54F cannot be decided conclusively on presumptions – thus, the matter is remitted back to the AO for fresh adjudication – Decided in favour of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee is an individual. For the AY under consideration, assessee filed his return of income on 07/05/10 admitting total income of ₹ 9,82,040 besides agricultural income of ₹ 5,25,480. As appears from record, survey operations u/s 133A were conducted in case of assessee, his wife Smt. G. Rama Devi, Shri G. Simha Rao, Shri G. Mahendra Rao and Shri G. Sarvotham Rao on 09/03/10. During the survey operation, as stated by AO, assessee admitted that six acres of land situated at Maqta Mehoobpet village, Serilingampalli, RR District was sold to M/s Marlas Developers Pvt. Ltd. for a consideration of ₹ 4.5 crore per acre by himself and other family members in the FYs 2007-08 and 2008-09. AO on examining the agreement of sale-cum-irrevocable power of attorney executed by assessee and other family members, noted that assessee and other family members have entered into the following sale transactions: Date of transaction Deed No. Name of the seller Extent/ Survey No. Sale Consideration (in Rs.) 21/01/2008 21/01/2008 381/2008 Sri G. Raghavender R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on over land also passed during the previous year relevant to AY under consideration. AO observed that as all ingredients of transfer as defined in section 2(47) as well as section 45 are satisfied capital gain has accrued in the AY 2009-10. Further, AO observed that assessee tried to change the entire character of transaction by entering into cancellation of agreement of sale-cum-GPA just after survey operation to avoid payment of tax arising from the sale of lands. AO observed that out of the consideration received from the sale of aforesaid capital asset, assessee has invested in the construction of a commercial building at Kukatpalli given on lease to an educational institution as well as other properties being lands and building etc. He further observed that investments were also made by assessee and others in the group in sister concerns of M/s Marlas Developers Pvt Ltd. in the form of share application money, AO relying upon a decision of AAR in case of Jasbeer Singh Sarkaria held that when the entire sale consideration was paid by way of cheque as noted in the agreement of sale-cum-GPA and when the possession has also been handed over the transfer is complete in all respect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cheque was not honored by them. It was submitted that even though all these facts were brought to the notice of AO, however, AO without taking cognizance of them, has arbitrarily concluded that there is sale of land by assessee to MDPL. Assessee submitted that as per the evidences available on record since no transfer took place by way of sale, no charge can be created u/s 45. Assessee analyzing the difference between sale and agreement to sale submitted that the transaction entered into by assessee by way of agreement of sale-cum-GPA has ultimately not been converted to sale so as to constitute transfer. Further cancellation of agreement of sale also puts an end to the agreement of sale. So far as the observation of AO that assessee has invested in construction of commercial building and other assets out of the sale consideration received it was submitted by assessee that such investments were out of the sale proceeds of land in AY 2008-09. Thus, in sum and substance assessee submitted that none of the ingredients of transfer as envisaged u/s 2(47) having been satisfied no capital gain accrues to assessee. 5. The CIT(A) after considering the submissions of assessee, visa-vis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... annot be a transfer u/s 2(47) of the Act. Learned AR submitted that simply entering into an agreement of sale-cum-GPA does not result in transfer of capital asset until the agreement of sale-cum-GPA culminates in a sale deed. It was submitted that in the present case since there is no sale deed executed between the parties transferring the land in question no capital gain arises. Learned AR submitted that further since there is no delivery of possession of the property to the vendee nor any consideration received by assessee towards sale of property there cannot be any transfer u/s 54 of the TP Act. 8. We have considered the submissions of the parties, perused the orders of revenue authorities and other materials on record. It is clear from the Assessment order that AO has come to a conclusion that there is transfer of capital asset i.e. land admeasuring acre 1.235 guntas by assessee to MDPL by solely relying upon the agreement of sale-cum-GPA dated 31/07/08. However, from the facts and materials on record, it becomes absolutely clear that though assessee had entered into agreement of sale-cum-GPA but it never received the consideration of ₹ 7,14,37,500 as mentioned in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the vendee. By entering into agreement of sale the vendee only acquires a right to sue the vendor for specific performance. However, in the present case, since the vendor as well as vendee have agreed to cancel the agreement of sale-cum-GPA by entering into a registered cancellation deed even that situation does not arise. Further, it would be evident from record that there is no other documentary evidence brought on record which could conclusively prove that the property in question stands transferred to the vendee during the relevant PY. On the contrary, as noted by learned CIT(A) assessee has produced a encumbrance certificate from SRO, which clearly indicates that assessee is owner of property. In these circumstances, the inference drawn by AO that assessee has sold the property resulting in capital gain cannot be upheld. Accordingly, we uphold the order of learned CIT(A) on this issue. It will be pertinent to mention here that though in one of the grounds the department has raised the issue of consideration of fresh evidence in violation of rule 46A by CIT(A) but at the time of hearing neither the learned DR made any substantive argument on this issue or brought to our not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is not a notified municipality by the central govt. The nearest notified municipality being HMC and the distance between HMC and Kistareddypet Village being more than eight kilometers, agricultural land sold by assessee cannot be considered as capital asset u/s 2(14) of the Act. The CIT(A) after considering the submissions of assessee vis-a-vis the facts on record, observed that in the certificate issued by the land acquisition officer while acquiring the land of the assessee it was classified as agricultural land and for that reason also separate rate of compensation was awarded to assessee. Further, the learned CIT(A) found that the land is situated in Patancheru Mandal but not in patancheru municipality which became part of GHMC w.e.f. 16/04/2007. However, it was observed by CIT(A) neither Patancheru Municipality nor newly formed GHMC are notified by CBDT. Therefore, even assuming that the lands were falling within erstwhile Patancheru municipality it cannot be treated as capital asset as it is not within eight kilometers of a municipality notified by central govt. The CIT(A) noted that even otherwise also the merger of Kistareddypet Village with GHMC became effective from 16/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ill become erroneous. Further, actual date of acquisition assumes importance considering the fact that assessee himself has shown the income in the impugned assessment year. Further, no material has been brought either by the assessee or by the department to indicate the exact distance of land from the limits of a nearest notified municipality. Without ascertaining these facts it cannot be decided whether the land acquired is a capital asset as defined u/s 2(14) of the Act. As necessary facts for deciding the issue has not been brought on record, we consider it appropriate to remit this to the file of the AO for deciding afresh after affording a reasonable opportunity of being heard to the assessee. Before parting we need to mention, as per section 2(47)(iii) compulsory acquisition is one of the mode of transfer. Therefore, if the subject land was acquired prior to formation of GHMC or if on verification it is found that land is classified as an agricultural land and is situated beyond eight kilometers of notified municipality on the date of transfer, it cannot be considered as a capital asset so as to attract capital gain. 13. In the result, appeal in ITA No.431/Hyd/13 is partl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... computation of income filed along with return of income, assessee admitted capital gain of ₹ 33,30,970 after claiming exemption of an amount of ₹ 1,73,01,173 u/s 54F. When the AO called upon assessee to substantiate her claim u/s 54F, assessee stated that she has invested the amount of ₹ 1,73,01,173 in construction of a residential building at plot No.312 and 313, VV Nagar, Kukatpalli. In support of such claim, assessee submitted a report from a registered valuer and copy of the municipal assessment/notice demanding ₹ 17,300 towards arrear and current tax. AO observed that though assessee had stated that the construction of new residential house was made between March 2007 to June 2008, but, the assessee has not provided any other information to substantiate such claim. It was noted by AO that the original asset was sold by assessee on 21/01/08 and the sale consideration was received by assessee through two cheques of HDFC Bank, Banjara Hills both dated 18/01/08 for ₹ 1,00,00,000 and ₹ 1,13,75,000. AO further observed that from the account maintained by assessee in Dhanlaxmi Bank it was found that the cheque of ₹ 1,13,75,000 was encashed on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therefore, directed the AO to restrict the claim u/s 54F to ₹ 1,62,28,600. 22. We have considered the submissions of the parties and perused the orders of the revenue authorities as well as other materials on record. On a perusal of the assessment order, it is apparent that AO has denied claim of exemption u/s 54F for two reasons i.e., construction of the new property was prior to the date of sale of original asset and secondly, the sale consideration received by assessee was not utilized for construction of the new asset. From the aforesaid finding of the AO, it is clear that he has no dispute with regard to the nature of the new asset i.e. a residential house. Now reverting back to the observations made by AO, as can be seen from the facts and materials on record, assessee has not only claimed that the construction of the new residential house was started in March 2007 and continued up to June 2008 but has also submitted a report from registered valuer in support of such claim. The bank statement also indicate the fact that not only the sale consideration of the original asset was deposited in bank account but there are substantial withdrawals from the bank account ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acceptance of assessee's claim of exemption u/s 54F by the CIT(A). 29. Briefly the facts are, during the assessment proceeding, AO noticed that while computing capital gain arising out of sale of land at Mqta Mehboobpet village for a total consideration of ₹ 2,70,00,000, assessee has claimed deduction of ₹ 98,83,399 u/s 54F of the Act, towards investment in construction of the property at plot No.161 162, Kukatpally along with his brother. AO while completing assessment however disallowed the claim of exemption u/s 54F for the following reasons: a. The property where the reinvestment of capital gains was made, cannot be considered as residential property since the same has been put to use for the purpose of other than residential i.e. as hostel accommodation, as such the property so constructed is not falling under category of the property termed as residential' in common usage. b. Assessee failed to furnish any supporting evidence on municipal assessment, showing it as residential property, in fact such property was not assessed to property tax, even as per the information in the FY 2008-09. c. Assessee failed to furnish the information to show ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... claim u/s 54F. So far as the observation of the AO that the size of the structure and dimensions of the building would not make it a residential building, assessee submitted that size of structures will have no impact on the issue whether a property is residential or commercial. As long as the structure is used as dwelling unit size and dimensions will have no impact on the nature of building. Responding to the allegation made by AO that relevant information with regard to date of commencement and completion of building and investment account was not furnished, assessee submitted that as no regular books of account were maintained, assessee could not furnish the details. However, assessee got the property valued through an approved valuer wherein details of cost and period of construction has been mentioned. So far as source of investment is concerned, it was submitted that AO never suspected the genuineness and adequacy of source for investment, hence, it will not have a vital role in deciding assessee's eligibility u/s 54F. So far as AO's allegation regarding lack of information on possession of other residential house at the time of transfer of the capital asset, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... because the building is used as hostel by some educational institute benefit u/s 54F cannot be denied to assessee solely on that ground. Further, it was observed that if the building as per its design and construction is made and if it is capable of being put to use as residential unit or dwelling unit by the owner or tenant it can be considered as a residential unit. CIT(A) opined that as section 54F has been enacted for giving incentive for development of the housing industry it requires liberal interpretation. On the basis of the aforesaid facts, CIT(A) ultimately concluded that the building constructed by assessee being used as a dwelling unit even though it may not have constructed as residential house as per the norms of the municipal authorities it cannot be considered as a commercial property and as such it has to be treated as residential property for the purpose of claiming deduction u/s 54F. Having held so, CIT observed that though assessee has claimed deduction of ₹ 98,83,299, however, the property being a joint property with equal share between the two brothers and the value of the property having been determined by the approved valuer at ₹ 1,70,41,000, as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ostel that by itself will not be a reason to hold that it is not a residential building. Similarly, the finding of CIT(A) is also conflicting and contradictory. While in one breath, learned CIT(A) observes that dual test for use of the property at the time of construction as well as subsequent period cannot be applied, however, in the same breath he observes that as the property can neither be taken as residential or commercial user test has to be applied. In our view, the nature of a property whether residential or commercial cannot be determined by solely applying the user test. In many instances, a purely residential house is used for commercial purpose, like school, office, etc. However, for that reason alone the property cannot lose its character of a residential house. Further, it is not understood how such a big building having four floors and pent house could be constructed without an approved plan and permission from the municipal authorities. No attempt has been made either by AO or by CIT(A) to ascertain the true nature of the property by examining the construction plan or approval given by municipal authorities, or through physical verification. In absence of these basi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mount of consideration 1.30.11.2007 Acres 0.05 guntas at Kistareddypet Rs.82,125/- 2.1.02.2008 Acre 0.17 guntas at Sultanpur Rs.6,98,165/- 3. 12.2.2008 Acre 0.15 guntas at Sultanpur Rs.4,10,825/- 4. 18.3.2008 Acre 0.12 quntas at Kistareddypet Rs.1,98,100/- 5.7.5.2008 Acre 1.25 guntas at Sultanpur Rs.17,75,575/ - Total Rs.31,68,790/- The documents associated with such transactions indicate that the same are dry lands and measured in terms of acres for stamp duty purpose, with the nature of the lands clearly indicated as agricultural lands. The certificate issued by therevenue authorities in this regard also clearly indicate that the agricultural activities are carried on such lands and the said lands are agricultural lands in nature. Further, agricultural income was shown to have raised on such lands which has been offered for Income-tax as per th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n claimed u/s. 548. This ground of appeal is treated as allowed. 39. We have considered the submissions of the parties and perused the orders of the revenue authorities as well as other materials on record. As can be seen from the facts on record, assessee derived gain from sale of agricultural land to the tune of ₹ 31,68,790 which was claimed as exempt having been invested in purchase of agricultural land. On a perusal of the finding of the CIT(A) extracted hereinabove, it is absolutely clear that the land purchased at Kistareddypet and Sultanpur Village in Patancheru Mandal are classified as agricultural land not only as per the registration deed, pattadar pass book, etc., but, has also been certified by revenue authorities as agricultural land. On careful reading of section 54B of the Act, it becomes clear that the only requirement for claiming deduction is the capital gain arising from transfer of agricultural land if is invested in purchase of any other land for being used for agricultural purposes, then, assessee would be eligible for deduction. In the facts of the present case, the documentary evidences submitted by assessee clearly prove that the land purchased ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from other sources is erroneous in law and therefore the addition under the head income from other sources is liable to be deleted. 47. Briefly the facts are, in the return of income filed for the assessment years 2008-09 and 2009-10 assessees' disclosed certain agricultural income. During the assessment proceeding, AO after examining the claim of assessee, though, accepted the extent of agricultural land owned by assessee, but, he was of the view that assessee has shown the income from agriculture on the higher side. Accordingly, AO restricted the income from agriculture to ₹ 20,000 per acre and in this process while allowing part of the agricultural income shown by assessee treated the other part as income from other sources'. The CIT(A) also approved the view of the AO by sustaining the addition made towards income from other sources'. 48. The learned AR submitted before us that the AO neither disputed the extent of agricultural land owned by each of the assessees nor has disbelieved the earning of agricultural income. However, without any basis AO has restricted the agricultural income by applying the rate of ₹ 20,000 per acre. The learned AR su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. Name of assessee Agriculture income disclosed for past assessment years 2005-06 2006-07 2007-08 1. G. Raghavender Rao 3,85,800 - 4,92,300 2. G. Simha Rao 3,55,650 4,23,900 4,76,000 3. G. Sarvotham Rao - 2,34,650 2,86,400 4. G. Mahender Rao 2,42,500 3,24,800 3,65,750 5. G. Rama Devi 2,07,600 3,53,500 4,23,540 51. There is also no dispute to the fact that the agricultural income shown by assessees in the preceding assessment years have been accepted by the department. On comparative analysis of the agricultural income shown in the preceding assessment years with the agricultural income shown in the impu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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