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2015 (7) TMI 520 - ITAT HYDERABAD

2015 (7) TMI 520 - ITAT HYDERABAD - TMI - Capital gain - transfer of immovable property without any written contract - whether there is a transfer of capital asset during the year in terms of section 2(47)(v) as alleged by AO? - CIT(A) deleted he addition - Held that:- Thus, it is patent and obvious, handing over possession of property by assessee to the income tax department is by virtue of an unilateral act of the state govt. over which assessee has neither any say nor any control but at the s .....

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sed by the state govt. In the aforesaid facts and circumstances, in absence of written contract, quantification of consideration to be paid, it cannot be said that there is a transfer in terms of section 2(47)(v) of the Act.

It is clear from the GOMS issued by govt. that the cost of land will be determined by the state govt. through a separate order. However, as yet no order has been passed by the govt. determining the cost of land. It is also evident from the statement of audited acc .....

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favour of assessee.

Deduction claimed on payment of VRS - direction of ld. CIT(A) amounts to setting aside the issue to AO - Held that:- we are of the view that ld. CIT(A) instead of directing AO to verify assessee’s claim and decide the issue, should himself have decided the issue as direction of ld. CIT(A) amounts to setting aside the assessment order, which he is not authorized to do under the statute. If at all ld. CIT(A) wanted to verify any factual aspect, he could have called .....

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Dated:- 30-6-2015 - Shri P.M. Jagtap and Shri Saktijit Dey, JJ. For the Petitioner : Shri D. Sudhakar Rao For the Respondent : Shri S. Rama Rao ORDER PER BENCH: Aforesaid appeals one by the department and two by assessee are directed against separate orders of ld. CIT(A)-II, Hyderabad for the AYs 2002-03, 2005-06 and 2006-07. Assessee has also filed C.O. against the order of ld. CIT(A) for AY 2002-03. As the appeals filed are on common issues and relate to same assessee, they are clubbed and he .....

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and admit the appeal for hearing on merit. 3. The only issue raised by the department in this appeal is in relation to the decision of ld. CIT(A) in deleting the addition made by AO on account of capital gain. 4. Briefly the facts relating to this issue are, assessee is a state public sector undertaking and is in the business of land leveling, hiring and sales of tractors. For the AY under consideration, assessee filed its return of income declaring nil income after setting off brought forward l .....

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was stated by assessee that no capital gain arose during the relevant PY in respect of the land at 10- 2-3, AC Guards, Hyderabad as it was not through a registered conveyance deed and there was no transfer within the meaning of section 2(47)(v) of the Act. During assessment proceeding, assessee also filed a revised computation of income working out the long term capital gain at ₹ 1,16,33,336 after excluding capital gain shown earlier in respect of the property at AC Guards, Hyderabad. AO .....

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lue of the land transferred was to be determined by the state govt. and set-off against loans payable by the corporation to the state govt. The same was not finalized till date. Some value was determined for book entry purposes but was yet to be formally approved by the state govt. Only after the consideration receivable is finally determined and the state govt. finalises the legal formalities of transfer of land with the income tax department, transfer could be said to be complete. 3. For the p .....

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ed that in the original return, assessee has not disclosed any capital gain on the property situated at AC Guards, Hyd. However, in the revised return, even though, assessee mentioned that sale was not complete, but, still it offered sale consideration as income in the P&L A/c. Accordingly, depreciation statement was prepared deleting the property at AC Guards, Hyd. from the list of fixed assets. Thus, it was observed by AO only on an after thought that the total income will increase to the .....

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to the State Government, for a consideration equivalent to the loans to be paid by it to the govt. of AP. AO referring to the GOMS No. 33 dated 03/07/2001 of state govt. for handing over possession of the property to the income-tax department, observed that the Act of the state govt. passing G.O. transferring land to a third party indicates that state govt. has taken over ownership/possession of the land. As far as consideration was concerned, the said G.O. also makes it clear that necessary or .....

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as on 31/03/2002, which indicates transfer of land to the state govt. AO observed, even assessee has handed over the possession of property in compliance to the GO issued by the state government. On the basis of the aforesaid facts, AO observed that transfer of property has taken place and only adjustment entry has to be passed in respect of land towards loan amount payable to govt. of AP, therefore, the consideration in a sense has been received in advance by assessee corporation. On the afore .....

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evant PY. It was submitted by assessee that, though, AO has put much emphasis on the entries made in the books of account, but, they are not determinative of a receipt or its assessability as income. It was submitted that the govt. order itself would reveal that necessary orders in respect of cost of land and its adjustment against loan amount will be issued separately. Therefore, when cost of land itself is not determined, computation provision would fail in view of the principle laid down by t .....

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e govt., assessee was directed to hand over possession of the property to the income-tax department and in compliance to the government s order, assessee handed over possession of the property to the income-tax department on 31/10/2001. Ld. CIT(A) observed that till possession of the property was handed over by virtue of the govt. s order, assessee was the owner of the property. However, the income-tax department in exchange of land owned by it at some other place secured the said property from .....

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property. Ld. CIT(A) after going through the provision of section 2(47)(v) of the Act, observed that as per the said provision any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 is to be treated as transfer. Keeping in view aforesaid provision, ld. CIT(A) while examining the facts of the case found that though property in questio .....

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cannot be taken as full value of consideration within the meaning of section 48 of the Act. He, therefore, concluded that in view of the specific order of the govt. providing for determination of cost of land through a separate order, crediting the market value by assessee in its accounts will have no relevance and assessee cannot be tied down to such wrong entry made in the books of account. In this context, he relied upon a decision of Hon ble Supreme Court in case of Alapati Venkata Rao Vs. C .....

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respect of the cost of the said property. 7. Ld. DR strongly supporting the reasoning of the AO submitted before us, once possession is handed over by assessee of the immovable property, there is a transfer in terms of section 2(47)(v) of the Act irrespective of fact whether there is a written contract or not. Ld. DR submitted, when the handing over of possession is not in dispute and further when assessee has credited market value of the property to P&L A/c and removed it from the list of f .....

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fer. He submitted, in the facts of the present case, as per the order issued by govt., assessee has handed over the possession of the property to the income tax department. There is no contract in writing between assessee and state govt. so as to treat it as transfer as envisaged u/s 53A of the T.P. Act. Ld. AR referring to the govt. order submitted, it is an unilateral act of the state govt. to hand over the land in question to the income tax department. However, though, in the said order, it h .....

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credited in the books of account has been shown as receivable and not adjusted against loan. In this context, he referred to the balance sheet and P&L a/c of assessee company. Further, he submitted, entries made in the books of account with regard to market value or removing the land from fixed assets are neither determinative nor conclusive factor for accrual of income so as to tax it in the hands of assessee. Ld. AR relying upon a decision of the Hon ble Supreme Court in case of K.P. Varg .....

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istinguishable and will not apply to assessee s case. 9. We have considered the submissions of the parties and perused the materials on record as well as orders of revenue authorities. As can be seen, solely relying upon the fact that assessee has handed over possession of the property to the income-tax department in terms with the GOMS issued by govt., AO has inferred that there is a transfer in terms of section 2(47)(v) of the Act. Therefore, the fundamental issue which requires to be decided .....

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said provision would make it clear that the words allowing the possession of any immovable property cannot be read in isolation, but, has to be read in conjunction with the words to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 . Therefore, it is all the more necessary to look into the provision of section 53A of the T.P. Act, 1882 which reads as under: 53A. Part performance.-Where any person contracts to tra .....

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med or is willing to perform his part of the contract, then, notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressl .....

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on 2(47)(v) recognizes delivery of possession in pursuance to a contract in the nature envisaged u/s 53A of T.P. Act, 1882 as deemed transfer for charging capital gain tax, but, section 53A of the T.P. Act, 1882 does not contemplate a transfer of immovable property by itself. What it provides is a legally enforceable right upon the transferee in respect of the ownership of the property provided transferee has performed or willing to perform his part of the contract. 9.3 If we consider the facts .....

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a fact that possession of the property has been handed over by assessee to the income tax department, but, the same is in compliance to the direction of the govt. vide GOMS No. 33 of 03/07/2011. Thus, it is patent and obvious, handing over possession of property by assessee to the income tax department is by virtue of an unilateral act of the state govt. over which assessee has neither any say nor any control but at the same time it has to comply to the same. In the aforesaid facts and circumsta .....

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of written contract, quantification of consideration to be paid, it cannot be said that there is a transfer in terms of section 2(47)(v) of the Act. As far as the decision of Potla Nageswara Rao (supra) is concerned, on careful analysis of the same, it is found that the same is factually distinguishable and will not apply to present case. In case of Potla Nageswara Rao (supra), assessee has entered into a development agreement and in terms with the development agreement, assessee has handed ove .....

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ve nor determinative factor to conclude accrual of real income at the hands of assessee. It is clear from the GOMS issued by govt. that the cost of land will be determined by the state govt. through a separate order. However, as yet no order has been passed by the govt. determining the cost of land. It is also evident from the statement of audited accounts of assessee, though, assessee has credited the market value of the property to P&L A/c, but, it has been shown as receivable and has not .....

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t, through an order of the state govt. The said order also provides that the govt. will determine the cost of land and adjust the same towards loan repayable by assessee to govt. From the aforesaid facts, it is clear that transfer of land was not out of assessee s own volition but at the instance of the state govt. Therefore, even assuming that there is a transfer but the same is akin to or similar in nature to transfer by way of compulsory acquisition as envisaged u/s 45(5) of the Act. That bei .....

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assessee in C.O. is in relation to the direction of ld. CIT(A) with regard to the deduction claimed on payment of VRS. 12. Briefly, the facts relating to this issue are, during the assessment proceeding, AO noticed that assessee has claimed deduction on account of payment made towards Voluntary Retirement Scheme (VRS). He found that assessee while computing its profit has reduced an amount of ₹ 10,82,16,659 as prior period adjustment. When assessee was asked to show the reasons for not ad .....

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held that prior period adjustment of ₹ 10,82,16,659 is not allowable. As far as the expenditure incurred towards VRS for the impugned AY is concerned, AO observed that only 1/5th of the amount claimed is allowable. Being aggrieved of the disallowance made, assessee preferred appeal before ld. CIT(A). 13. In course of appeal proceeding, it was submitted by assessee that as assessee has incurred expenditure towards VRS for the AYs 1997-98, 1998-99 and 2000-01 as well as for the current AY, s .....

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ant PY and allowed 1/5th out of the same while disallowing the expenditure relating to earlier AYs. Ld. CIT(A) after considering the submissions of assessee, decided the issue as under: 5.2 The AR was heard and the appellant's written submissions duly considered. I find from the relevant part of the impugned order that there is no mention of the brought forward VRS-expenditure pertaining to the AYs: 1997-98, 98-99 and 2000-01. It is apparent that the appellant also appeared to have had not r .....

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directed to verify the said claim(s) by the appellant and allow as per relevant provisions of the Act. The appellant is also directed to furnish all necessary information in this behalf to the AO to ensure complete appreciation of the facts thereof. Thus, this ground of appeal is treated as allowed. 14. Ld. AR submitted before us, the direction of ld. CIT(A) amounts to setting aside the issue to AO, which he is not authorized to do as per the statute. He, therefore, submitted that matter may be .....

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