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M/s. Essae Teraoka Ltd. Versus Dy. Commissioner of Income Tax, Circle 11 (3) , Bangalore.

2016 (3) TMI 579 - ITAT BANGALORE

Validity of reopening of assessment - whether non sanction was duly granted / approved by the competent authority? - Held that:- In response to the objections, the learned Departmental Representative has produced the assessment record before us indicating the requisite sanction was duly granted by the CIT. On perusal of the record, we find that the notice under Section 148 dt.16.3.2012 issued by the Assessing Officer after the sanction was duly granted / approved by the competent authority. Ther .....

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f the assessment. There is no dispute that at the time of execution of the sale deed dt.15.2.2006, the parties have determined the value of the constructed share of the assessee to the extent of 53% at ₹ 6,22,72,000. There is also no dispute that the cost of land in question was ₹ 6,22,72,000 which has been admitted by the Assessing Officer in the assessment order. Therefore as per the claim of the assessee there was no capital gains on transfer of land in question in favour of the d .....

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nts may also include some of the expenditure which have not directly related to the construction activity but may have been incurred in relation to the general administration and other business expenditure. Since income in the hands of the developer is assessed to tax as business income, therefore, the said expenditure which are in the nature of business expenditure are allowable from the sale consideration of the constructed area belongs to the developer. Accordingly, in the absence of any enqu .....

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capital asset and expenditure booked by the developer in the course of construction activity being the business activity of the developer. Therefore, the expenditure recorded by the developer being business expenditure having no direct nexus with construction cannot be adopted as cost of construction for the purpose of capital gains in the hands of the assessee. Accordingly, we delete the addition made by the Assessing Officer on account of capital gains. - Decided in favour of assessee - I.T.A. .....

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risdiction and bad in law and was liable to be quashed. The learned Commissioner of Income-tax (Appeals), has instead of quashing the order, erred in confirming the same. 2. The conditions precedent for issue of notice u/s. 148 of IT. Act, 1961 being not present, the notice as issued was bad in law and consequently all proceedings being bad in Jaw are to be quashed. 3. In any case, and without prejudice the notice u/s. 148 having been issued without following the prescribed procedure in law is b .....

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r appeal is not correct on the fact and circumstances of the case and law applicable, therefore the taxing of capital gain in the year under appeal being wrong is to be deleted. 5. In any case and without further prejudice, the calculation of capital gain is wrong. 6. The Assessing Officer has erred in levying interest. The appellant denies the liability to pay interest. The interest having been levied erroneously is to be deleted. 7. In view of the above and on the grounds to be adduced at the .....

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143(3) vide order dt.26.11.2007 by accepting the returned income of the assessee. Subsequently, the Assessing Officer received communication from the Joint Director of Income Tax (Investigation) (OSD), Bangalore disclosing the fact that capital gains amounting to ₹ 49,98,089 arising from transaction relating to transfer of immovable property had escaped assessment. This fact came to the knowledge of the revenue authorities due to the search carried out in the case of M/s. V Infrastructure .....

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The CIT (Appeals) did not accept the contention of the assessee on the point of the validity of reopening as well as reassessment and upheld the action of the Assessing Officer. 3. Before us, the learned Authorised Representative of the assessee submitted that reopening is not valid because the notice issued under Section 148 dt.16.3.2012 is beyond four years from the end of the assessment year and therefore reopening without the requisite approval of the authority is not permissible. 4. The le .....

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on 148 dt.16.3.2012 issued by the Assessing Officer after the sanction was duly granted / approved by the competent authority. Therefore, in view of the fact that the Assessing Officer obtained the necessary approval / sanction of the competent authority, the objections raised by the learned Authorised Representative against the validity of the notice under Section 148 does not survive. Accordingly, we reject this ground of the assessee in respect of the validity of the reopening. 5. The next co .....

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ssessment year 2006- 07 and not in the assessment year 2005-06. Therefore when the incidence of capital gains does not occur during the year under consideration then the question of escapement of the income chargeable to tax does not arise. The learned Authorised Representative of the assessee has referred to the Joint Development Agreement ( JDA ) and submitted that no transfer took place regarding the land in question. He has pointed out that as per the terms and conditions of the JDA, the ass .....

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ear 2006-07 and not during the period relevant to the Assessment Year under consideration. The learned Authorised Representative of the assessee has further pointed out that even otherwise there is no capital gain arises or accrued to the assessee on transfer of land in question because the cost of the land in the hands of the assessee as well as sale consideration is same and the assessee has not charged anything more than the cost of the land. He has pointed that the Assessing Officer has work .....

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gains and valuation of the constructed share of the assessee in the project is without any basis. The cost recorded by the developer in its books of accounts is inclusive of all other expenditure including the advertisement and marketing. Therefore the same may not be the true cost of the construction of the project as some of the expenditure at the end of the developer may be in the nature of general business expenditure. This cannot be imbibed to the cost of the construction for the purpose of .....

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the Assessing Officer is highly presumptive and without any basis when the assessee has already disclosed the consideration in the sale deed. On the other hand, the learned Departmental Representative has submitted that the assessee did not disclose the capital gains in return of income arising out of transfer of property in question, therefore, there was no occasion for considering this aspect of the assessment of income while framing the original assessment dt.26.11.2007. Only because of the .....

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capital gains and the incidence of the capital gains during the year under consideration, the learned Departmental Representative has submitted that when the land in question was transferred in favour of the developer vide JDA dt.28.1.2005 and the developer was allowed to take possession of the land for the purpose of construction of the area then the condition as prescribed under Section 2(47)(v) rws 53A transfer of the Properties Act are satisfied on the completion of the transaction of handi .....

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ation of the constructed area allotted to the assessee at ₹ 6,72,70,089. 6. We have considered the rival submissions as well as the material on record. As regards the validity of reopening of assessment, we find that admittedly the assessee did not disclose the capital gains arising from transfer of the land in question in the return of income. The assessee was owner of the property bearing No.6B situated at Koramangala Indl. Layout in Ward No.68, Koramangala, Bangalore-560034. The assesse .....

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he undivided share, the title and interest in the land in question in favour of the developer. There was a search in the group concern of the developer under Section 132 during which the transaction of transfer of land under JDA was detected by the Investigation Wing of Income Tax Department. Therefore, on receipt of the information from the Investigation Wing that the assessee has transferred the land in question in favour of the developer, the Assessing Officer proposed to reopen the assessmen .....

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astructure Pvt. Ltd. on 5.7.2001 and during the course of search investigation, it came to light that M/s. Vaishnavi Promoters & Developers, a sister concern of Vaishnavi Group has entered into a Joint Development Agreement dt.28.1.2005 with M/s. Essae Teraoka for construction of commercial complex on the land situated at No.6-B, VII Main, 80 feet road, Koramangala, Bangalore with a total built up area of 1,00,644 sq. ft. and the share of built up area given to the assessee company is 53,341 .....

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r built up area allotted to Essae Teroka is ₹ 6,72,70,089. Thus there is a capital gain to the extent of ₹ 49,98,089 in the hands of the assessee company for the A.Y. 2005-06. As the joint development agreement was entered in the F.Y. 2004-05, the capital gain has to be taxed for the Assessment Year 2005-06 as per the judgement of Hon'ble High Court of Karnataka in the order in ITA Nos.3209 of 2005 - CIT Vs. Dr.T.K. Dayalu. On verification of the records of this office, it is obs .....

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rded that prior to the information received from the Investigation Wing and prior to the search under Section 132, there was no occasion for the Assessing Officer to take note of this fact that the assessee has entered into a JDA with the developer and thereby the assessee has transferred 47% share in the land in favour of the developer. Thus keeping in view of the facts and circumstances of the case, we find that there was a tangible material came to the notice of the Assessing Officer on the b .....

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e Assessing Officer could not withstand the test of scrutiny on merits. Hence we do not find any error or illegality in the order of the CIT (Appeals) in confirming the validity of the reassessment by the Assessing Officer. 7. As regards the incidence of arising of capital gains during the year under consideration, we note that the assessee has permitted the developer to enter upon the property and construct a commercial building. Apart from allowing the developer to take over the property for t .....

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loper who will be able to formulate a scheme for development of the Schedule Property. The Developer who is in the field of property development and having come to know of the intention of the owner has offered to develop the Schedule Property by constructing a multistoried Commercial Building for which the owner has agreed since the same would accrue to its benefit also. AND WHEREAS the owner….. AND WHEREAS the Developer acting on the above representations has agreed to develop at its co .....

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ing spaces, together with exclusive rights for usage of 53% of the open terrace area as detailed in the sketch attached in consideration of the owner transferring or conveying 47% of undivided share of right, title and interest in the Schedule Property in favour of the Developer or its nominees as agreed upon and as set out hereunder. AND WHEREAS the owner….. 1. DEVELOPMENT : That in pursuance of the foregoing, the Owner hereby authorizes and empowers the developer to develop the Schedule .....

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ng in the Schedule Property at its own cost and expense, utilizing (subject to necessary approvals by the authorities) the floor area ratio and allot and deliver 53% (approx. 4628.96 sq. m. of super built area) of the total saleable constructed super built area along with 41 (Fortyone) Nos. covered and 23 Nos. uncovered car parking space to the owner or its nominees. The Commercial Building shall be constructed in accordance with the specifications appended to this Agreement. It is further agree .....

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stood between the parties that the license to enter Schedule Property being given to the Developer is not being given or intended to be given by the Owner in part performance of this Agreement under Section 53A of the Transfer of Property Act and this is not a Sale Agreement in any form or manner. Both the parties confirm that the owner shall retain legal possession over the Schedule Property, subject to other terms and conditions of this agreement. The Development contemplated by this Agreement .....

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t and interest in the land under JDA & Power of Attorney are irrevocable. Therefore, 47% of the land was transferred by the assessee in favour of the developer at the time of executing the JDA dt.28./1.2005 against the consideration in the form of constructed area equivalent to the 53% of the total super built up area amounting to 4628.96 sq. m. Thus the consideration for transferring the land in favour of the developer was the value of the cost of construction of built up area equivalent to .....

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eveloper was entitled to enjoy the property and even to sell the same after construction of the same. Therefore, it is nothing but transfer under the JDA to the extent of the share received by the developer from the constructed property as well as undivided share in the land. Thus the JDA constitute transfer of property as per the provisions of section 269UA as well as rws 2(47)(v) of the Act. Accordingly, we are of the view that the condition of transfer of the capital asset as prescribed under .....

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f land to the extent of 47% in favour of the developer took place during the year under consideration. 8. The next question for our consideration is the computation of capital gains. The learned Authorised Representative has vehemently contended that the Assessing Officer has computed the capital gains by taking the cost of construction as recorded by the developer in the books of accounts without making any enquiry. We find that the Assessing Officer has not conducted any enquiry to but just ad .....

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as per the claim of the assessee there was no capital gains on transfer of land in question in favour of the developer because cost as well as the sale consideration is same. The learned Authorised Representative has also relied upon the guideline value as notified by the Govt. of Karnataka in respect of the area in question and thus contended that the guideline value prescribed by the Govt. is much less than the sale consideration agreed between the parties. We find force in the contention of .....

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