TMI Blog2016 (3) TMI 579X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 the learned Authorised Representative that the cost recorded by the developer in the books of accounts 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce in the previous year relevant to year under appeal and in accordingly taxing as capital gain for the year under appeal and the learned Commissioner of Income-tax (Appeals) has erred in confirming the same. The incident of transfer having not taken place during the previous year relevant to Assessment Year 2005-2006, the taxing of capital gain in the year under 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 time of hearing it is requested that the impugned order be quashed or at least to addition made to income be deleted and interest levied be deleted. 2. Ground Nos.1 to 3 regarding validity of reopening of assessment. The assessee is a company engaged in the manufacture and sale of specialized electronic goods. The assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... / 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 contention of the learned Authorised Representative against the reopening the assessment is that the Assessing Officer was not having any material to indicate that the alleged capital gains has escaped assessment during the year under consideration. He has further contended that this issue also goes to the merits of the case that during the year under consideration there was no transfer of the alleged land by the assessee but it was transferred only vide sale deed dt.15.2.2006 which falls in the assessment 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the rate prescribed by the Govt. of Karnataka in respect of the area wherein the property is situated. Thus the learned Authorised Representative has submitted that the addition made by 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 search conducted in case of the developer group, the Assessing Officer came to know about the transfer of the land in question and the assessee has not disclosed the capital gains in the return of income. Thus the learned Departmental Representative has submitted that the Assessing Officer was having sufficient tangible material to form the opinion that the income assessable to tax in respect of the capital gains arising from sale of the land has escaped assessment. As regards the computation of capital gains ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion in favour of the developer, the Assessing Officer proposed to reopen the assessment by recording the reasons as under :- M/s. Essae Teraoka Limited filed its return of income for the Assessment Year 2005-06 on 31.10.2005 declaring income of ₹ 7,97,74,810. The return was selected for scrutiny and assessment completed under Section 143(3) on 26.11.2007 determining a taxable income of ₹ 7,97,74,810. In this case information has been received from the JDIT (Inv.)(OSD), Bangalore stating that a search under Section 132 was carried out in the case of M/s. Vaishnavi Infrastructure 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 sq. ft. The total cost of construction of 1,00,644 sq. ft. is ₹ 12,69,24,695. As per the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns recorded by the 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 the purpose of construction, the assessee has also executed a Power of Attorney in favour of the developer to facilitate the developer to sell the property along with the undivided land to the extent of 47%. The relevant part of the recitals as well as terms and conditions of the Joint Development Agreement (JDA) are reproduced as under :- AND WHEREAS the Owner is desirous of developing the Schedule Property by constructing a Commercial Building thereon and the owner was on the lookout for a Developer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are of the undivided interest in the Schedule Property in favour of the Developer or its nominee/s in accordance with clause 2.1 infra. 2.1 . 3 4 5 .. 6 .. 7. LICENSE TO ENTER : The owner has granted license to enter the Schedule Property to the Developer for the purpose of constructing the Commercial Building immediately on signing this Agreement. It is specifically understood 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 is not in the nature of a Partnership as contemplated either by the Indian Partnership Act, 1932, or by the Income Tax Act, 1961. Thus it is clear that the intention of the party as reflected form the JDA clearly manifest that the assessee handed over 100% of the land to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 adopted the figure as given in the report of the Investigation Wing sent to the Assessing Officer for reopening of 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 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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