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Smt. G. Sailaja Versus I.T.O, Ward 11 (3) , Hyderabad

2017 (12) TMI 260 - ITAT HYDERABAD

Capital gain - reassessment u/s 147 - transfer through development rights agreement - admission of additional ground - new legal ground in view of the clarificatory amendment brought in by Finance Act of 2017, by way of insertion of sub-section (5A) to section 45 of the I.T. Act, 1961 w.e.f. 1.4.2017 - Held that:- By virtue of amendment, the Legislature intends to confer a benefit which was hitherto not available and hence it is applicable prospectively. The Legislature, was very clear that this .....

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egal ground cannot be admitted at this stage as no useful purpose would be served in remanding the issue to the file of the AO as the sub-section itself is not applicable for the relevant A.Y. The additional ground of appeal raised by the assessee under Rule 11 of the ITAT Rules is accordingly rejected. - As regards the validity of the re-assessment proceedings, we find that the assessee has filed the return of income but has not offered the capital gains arising out of the development agree .....

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fore, the assessee’s grounds of appeal on the year of taxability are rejected. - Computation of the short term capital gains - estimated value of the property adopted by the parties to the development agreement - Held that:- As regards the enhancement of the income by the CIT (A), we find that the AO has adopted the SRO value of the land on the date of transfer for the purpose of computing the short term capital gains, while, the CIT (A) has adopted the estimated value of the property adopte .....

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operty as mentioned in the development agreement is clearly for the land as well as the super structure to be built up on such land which is given for development. Though the development agreement does mention the period of completion of the project, it certainly remain uncertain as to whether the construction would be completed within the stipulated period. The market condition and the market rate when the constructed area is handed over to the assessee may also vary and it may be more or less .....

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arranging the development agreement, the assessee has not been able to produce any evidence of making the payment during the relevant previous year even before the Tribunal in support of her contention. Therefore, we are constrained to confirm the disallowance of the same. - Penalty u/s 271(1)(c) - Held that:- Having regard to the rival contentions and the material on record, we find, that the return of income for the A.Y 2006-07 was filed on 29.09.2006, while the decision of the Hon'ble jur .....

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o evade the tax. Therefore, we are of the opinion that it is not a fit case for levy of penalty u/s 271(1)(c). - ITA Nos.51 & 579/Hyd/2016, 716/Hyd/2015 And 52/Hyd/2016 - Dated:- 30-11-2017 - Smt. P. Madhavi Devi, Judicial Member And Shri S.Rifaur Rahman, Accountant Member For The Assessee : Shri A.V. Raghuram For The Revenue : Smt. Suman Malik, DR ORDER Per Smt. P. Madhavi Devi, J.M. All the above are assessee s appeals against assessments u/s 143(3) of the Act for the A.Ys 2006-07, 2007-08 and .....

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a delay of 38 days in filing of this appeal before us. The assessee has filed an application for condonation of delay along with her affidavit stating that since she is a senior citizen, the affairs of the property are looked after by her son, Mr. G. Madhav Prasad and that on receipt of the order of the CIT (A), she had handed over the same to her son, and they were under the impression that the appeals in respect of the A.Ys 2006-07 and 2011-12 are not required to be filed in view of the fact t .....

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e appeals were filed before the Tribunal on 14.03.2016 resulting in the delay of 38 days. Therefore, she prayed that the delay may be condoned. 3. The learned DR however, opposed the condonation of the delay stating that the assessee has failed to explain the reasonable cause for the delay of 38 days. 4. Having regard to the rival contentions and the material on record, we are satisfied that the delay is neither wilful nor wanton and that there is a reasonable cause for not filing of the appeal .....

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10.2003 and that subsequently, all the owners entered into a development agreement-cum-GPA with M/s Vertex Homes Pvt. Ltd on 9.1.2006 vide document No.1370/2006 and as per the said deed, the total area to be built up was two lakh sft and the estimated market value of such built up property was ₹ 8.80 crores. Further, as per the deed, the owners were entitled to 46% share in the constructed area. He observed that though the capital gain has arisen to the assessee on account of the developme .....

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ssessee filed a letter stating that she had admitted the capital gains in the A.Y 2011-12 on getting possession of the flats and further stated that as per the supplementary development agreement dated 10.04.2010, the entitlement of the land owners has come down to 43% from the earlier 46%. The assessee also relied upon the grounds raised by the Revenue before the Hon'ble High Court of Andhra Pradesh in the case of Dr. Maya Shenoy (124 TTJ 692) for the A.Y 2006-07, to argue that the capital .....

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the share of the constructed area to the land owners at 43% as per the supplementary agreement and calculated 1/6th share of the assessee thereon. For the purpose of computing the sale consideration for transfer of land, he adopted the SRO value being ₹ 2200 per sq. yard and determined the short term capital gain at ₹ 19,24,956. 7. Aggrieved, the assessee preferred an appeal before the CIT (A), challenging (i) the validity of the reopening of the assessment; (ii) the year of the tax .....

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j Dwarkadas Kapadia vs. CIT (2003) 260 ITR 491, to hold that the year of execution of the development agreement coupled with the handing over of the possession of the land to the Developer, is the year of taxability. The CIT (A) did not therefore accept the assessee s contention that the year of receipt of constructed area in the year of taxability or in the alternative, since the supplementary agreement has been entered into subsequent to the development agreement has been entered into, and the .....

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ich is much lower than the value mentioned in the development agreement. He therefore, issued a show-cause notice for enhancement of the capital gain. The assessee submitted that the value of ₹ 8.80 crores is not only a composite value of the super structure and the land but is also for the entire land and that such composite value is fixed based on sale price quoted by the builder. The assessee submitted that the value that is likely to arise after an uncertain period cannot be the basis .....

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to one Shri Gnaneshwar for arranging the development agreement. In the absence of any evidence to support this contention, the CIT (A) disallowed the claim. 10. Against this order of the CIT (A), the assessee is in appeal before us. In the grounds of appeal filed along with Form No.36, the assessee has challenged the order of the CIT (A) in confirming the assessment u/s 147 of the Act even though, there is no escapement of income in the hands of the assessee for the A.Y under consideration as t .....

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dment brought in by Finance Act of 2017, by way of insertion of sub-section (5A) to section 45 of the I.T. Act, 1961, the orders of the authorities below bringing the capital gains to tax in the A.Y under consideration is erroneous and unsustainable. In the application seeking admission of the additional ground, it is stated that this provision has been brought in by the Finance Act, 2017 and that, it being a legal ground, should be admitted and remanded to the file of the AO as per the law laid .....

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eem it fit and proper to consider its admissibility at this stage. Finance Act 2017 has inserted sub-section (5A) to section 45 of the I.T. Act, 1961 which provides that the capital gains shall be taxed in the year in which the certificate of completion for the whole or part of the project is issued by the competent authority and where the property is transferred before the date of issue of the said certificate of completion, the capital gains should be deemed to be the income of the previous ye .....

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e Supreme Court has elaborately discussed the law relating to interpretation of taxing statues particularly the prospective/retrospective operation of amendments. At paras 27 to 36, the Hon'ble Supreme Court culled out the general principles concerning the retrospectivity of a legislation as under: General Principles concerning retrospectivity 27. A legislation, be it a statutory Act or a statutory Rule or a statutory Notification, may physically consists of words printed on papers. However, .....

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ation of Statutes . Vis-àvis ordinary prose, a legislation differs in its provenance, lay-out and features as also in the implication as to its meaning that arise by presumptions as to the intent of the maker thereof. 28. Of the various rules guiding how a legislation has to be interpreted, one established rule is that unless a contrary intention appears, a legislation is presumed not to be intended to have a retrospective operation. The idea behind the rule is that a current law should g .....

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ks forward not backward. As was observed in Phillips vs. Eyre[3], a retrospective legislation is contrary to the general principle that legislation by which the conduct of mankind is to be regulated when introduced for the first time to deal with future acts ought not to change the character of past transactions carried on upon the faith of the then existing law. 29. The obvious basis of the principle against retrospectivity is the principle of 'fairness , which must be the basis of every le .....

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lation. We need not note the cornucopia of case law available on the subject because aforesaid legal position clearly emerges from the various decisions and this legal position was conceded by the counsel for the parties. In any case, we shall refer to few judgments containing this dicta, a little later 30. We would also like to point out, for the sake of completeness, that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation .....

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n[5], the doctrine of fairness was held to be relevant factor to construe a statute conferring a benefit, in the context of it to be given a retrospective operation. The same doctrine of fairness, to hold that a statute was retrospective in nature, was applied in the case of Vijay v. State of Maharashtra & Ors.[6] It was held that where a law is enacted for the benefit of community as a whole, even in the absence of a provision the statute may be held to be retrospective in nature. However, .....

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against retrospective operation. Thus, the rule against retrospective operation is a fundamental rule of law that no statute shall be construed to have a retrospective operation unless such a construction appears very clearly in the terms of the Act, or arises by necessary and distinct implication. Dogmatically framed, the rule is no more than a presumption, and thus could be displaced by out weighing factors. 32. Let us sharpen the discussion a little more. We may note that under certain circum .....

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Act may be defined as an Act to remove doubts existing as to the common law, or the meaning or effect of any statute. Such Acts are usually held to be retrospective. The usual reason for passing a declaratory Act is to set aside what Parliament deems to have been a judicial error, whether in the statement of the common law or in the interpretation of statutes. Usually, if not invariably, such an Act contains a preamble, and also the word 'declared' as well as the word 'enacted'. .....

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anatory Act is generally passed to supply an obvious omission or to clear up doubts as to the meaning of the previous Act. It is well settled that if a statute is curative or merely declaratory of the previous law retrospective operation is generally intended. The language 'shall be deemed always to have meant' is declaratory, and is in plain terms retrospective. In the absence of clear words indicating that the amending Act is declaratory, it would not be so construed when the pre-amend .....

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only declaratory, explanatory or clarificatory statues or amendments are applicable retrospectively. Therefore, it is necessary to examine if the sub-section (5A) to section 45 is declaratory or clarificatory. The notes on clauses and memorandum of Finance Bill of 2017 would shed some light on this aspect. The relevant portion of the bill reads as under: Special provisions for computation of capital gains in case of joint development agreement. Under the existing provisions of section 45, capit .....

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wner in the year in which the possession of immovable property is handed over to the developer for development of a project. With a view to minimise the genuine hardship which the owner of land may face in paying capital gains tax in the year of transfer, it is proposed to insert a new sub-section (5A) in section 45 so as to provide that in case of an assessee being individual or Hindu undivided family, who enters into a specified agreement for development of a project, the capital gains shall b .....

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t of the transfer of the capital asset. It is also proposed to provide that benefit of this proposed regime shall not apply to an assessee who transfers his share in the project to any other person on or before the date of issue of said certificate of completion. It is also proposed to provide that in such a situation, the capital gains as determined under general provisions of the Act shall be deemed to be the income of the previous year in which such transfer took place and shall be computed a .....

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value of consideration under the said proposed provision. These amendments will take effect from 1st April, 2018 and will, accordingly, apply in relation to the assessment year 2018-19 and subsequent years. It is also proposed to insert a new section 194-IC in the Act so as to provide that in case any monetary consideration is payable under the specified agreement, tax at the rate of ten per cent shall be deductible from such payment. This amendment will take effect from 1st April,2017 . 14. Fr .....

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hipard Ltd, in ITA No.2404/Mum/2009 (SB) dated, 9.9.2011 has considered the retrospective and prospective effect of a substantive provision while considering the effect of amendment to section 40(a)(ia) by Finance Act of 2010 and at Paras 35 to 41 has culled the principles as under: 35. From the above discussion it is crystal clear that retrospective effect to a provision cannot be ordinarily given by judicial or quasi judicial authorities unless it is expressly given by the legislature. There m .....

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ctive effect by the legislature, can t be construed as retrospective on the solitary ground that the original provision caused some hardship to the assessees. The relevant criteria to be taken into consideration for arriving at the decision about the retrospective or prospective effect of a later provision, is to unearth the intention of the legislature at the time of introducing the original provision and not whether it caused hardship to the taxpayers. If it was very well known at the time of .....

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e it prospective. 36. In our considered opinion the border line between a substantive provision having retrospective or prospective effect, is quite prominent. One needs to appreciate the nature of the original provision in conjunction with the amendment. Once a provision has been given retrospective effect by the legislature, it shall continue to be retrospective. If on the other hand if the statute does not amend retrospectively, then one has to dig out the intention of the Parliament at the t .....

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of the fact whether ultimately assessed income is positive or negative. Similarly in the case of Kanji Shivji And Co. (supra), the Hon ble Supreme Court held that the purpose of Explanation 2 to section 40(b) was simply to clarify that the Income-tax Act recognizes individual statues of a person as different from his representative capacity. This Explanation did not bring in a new provision but clarified that the position was so since the introduction of the provision itself. In this category o .....

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s introduction and the object sought was fully attainable. But while making the provision workable, besides the desired results, certain unintended consequences also crop up. In other words, the section was introduced originally with a particular purpose but while giving effect to the provision in the attainment of that purpose, certain outcomes which were never desired or intended by the legislature, also follow. Any amendment to remove such unintended effects, is also always considered to be r .....

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cases of Allied Motors (P.) Ltd. (supra) and Alom Extrusions Ltd. (supra) fit into this second category of cases. In Allied Motors (P.) Ltd. (supra) the amendment was held to be retrospective on the ground that it was impossible to pay sales-tax for the last quarter before the close of the year as the liability to pay would arise only on or after 1st April. As it could never have been the intention of the legislature to require the assessee to do impossible, the amendment made to section 43B wa .....

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uences which were never envisaged. The emphasis is on the removal of unintended consequences and not intended consequences, even if harsh. It is settled legal position that there cannot be any equity about the tax. It is for the Parliament to decide as to in what manner the tax is to be levied and collected. If a provision is made which is harsh but otherwise constitutional and practical of implementation, there cannot be any question of reading down such provision on the ground of equity or har .....

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such hardship from a higher level to lower level, cannot be considered as retrospective unless expressly stated. The reason is obvious that in such cases the hardship which was faced by the assessees at the time of introduction of the provision was very much intended and foreseen and the subsequent amendment is reduction in the intended hardship and not the removal of unintended hardship. 40. On the contrary where the amendment is carried out to the provision with the purpose of adding some addi .....

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sses. The case of Varadaraja Theatre Pvt. Ltd. (supra) is based on facts in which the subsequent amendment granted a benefit to the assessee which was not available as per the earlier provisions. Thus we have noticed that in both types of cases in which the later provision has taken away some right which was earlier available or granted some benefit which was not earlier available, such amendments have been held to be prospective from the dates of insertion as these were neither clarificatory no .....

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mended provision itself indicate, either in terms or by necessary implication, that it is to operate retrospectively? In the light of this question, the Hon ble Supreme Court was called upon to reconsider its earlier judgments in Allied Motors (P.) Ltd. (supra), Suwalal Anandilal Jain (supra), Brij Mohan Das Laxman Das and Podar Cement. The Bench of five Hon ble Judges in this case noted that there is no conflict between the judgments which requires resolution by way of reference. From this judg .....

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slature intends to confer a benefit which was hitherto not available and hence it is applicable prospectively. The Legislature, was very clear that this provision is applicable w.e.f. 1.4.2018. While, inserting subsection (5A) to section 45, the consequent amendment to section 49 was also made by inserting sub-section (7) thereto w.e.f. 1.4.2018 and section 194IC was also inserted for tax deductions at source at the time of payment, applicable w.e.f. 1.4.17. Thus, the Legislature was aware of th .....

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sment proceedings, we find that the assessee has filed the return of income but has not offered the capital gains arising out of the development agreement in her return of income for the relevant A.Y. Therefore, the AO had the material to form a reasonable belief that the income of the assessee has escaped assessment. Therefore, we uphold the validity of the re-assessment proceedings. As regards the year of the taxability, we find that this issue is now covered in favour of the Revenue by the de .....

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pted by the parties to the development agreement, for registering the development agreement. In the development agreement, the estimated value of the property is mentioned as ₹ 8.80 crores. In our opinion, the CIT (A) has clearly erred in adopting this value for computation of the short term capital gains. At the time of development agreement, what is transferred by the assessee is only her share of the land and not the entire super structure along with the land. The estimated value of the .....

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ss than the estimated value of the property. Therefore, the same cannot be adopted for the computation of the capital gains. In our view, the value adopted by the AO i.e. ₹ 2200 per sft being the SRO value of the land on the date of transfer is reasonable and correct. We, therefore, uphold the order of the AO on the computation of the short term capital gains. 20. As regards the allowability of the expenditure of ₹ 80.00 lakhs which she claimed to have paid to one Shri Gnaneshwar for .....

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untas in survey No.76/B and 0.16 guntas in survey No.76/B by two separate purchases made by her and by document No.1808/2007, dated 9.3.2007, she entered into a development agreement cum GPA with M/s. Vertex Homes Pvt. Ltd as per which the total built up area was worked out at 1,25,000 square feet and the estimated market value of the property was ₹ 6,00,00,000/-. As per the deed, the owners were entitled to 46% share in the constructed area while the developer was entitled to 54% share. T .....

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sessee has offered the capital gains in the year when the built up area was actually handed over to the assessee. The AO was however, not convinced and brought the long term capital gains to tax by adopting the SRO value @ 35174/- per sft as the sale consideration. Aggrieved, the assessee preferred an appeal before the CIT (A) both on account of reopening of the assessment as well as computation of capital gain. The CIT (A) confirmed the order of the AO on both the counts. The assessee is in sec .....

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ee could not raise the said ground earlier, as she was agitating on the year of taxability and prayed that if the year of taxability is advanced to A.Y 2007-08, then the additional ground on the allowability of the expenditure in connection with the transfer should be considered. 25. The learned DR, however, opposed the admission of both the additional ground and additional evidence on the ground that they are pure factual issues. 26. Having regard to the rival contentions and the material on re .....

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as the additional evidence and deem it fit and proper to remit it to the file of the AO for verification of the additional evidence and adjudication of the additional ground of appeal in accordance with law after allowing the assessee, sufficient opportunity of being heard. 27. In the result, assessee s appeal for the A.Y 2007-08 is partly allowed for statistical purposes. ITA No.52/Hyd/2016 - A.Y 2011-12 28. At the outset, it is noticed that there is a delay of 38 days in filing of this appeal .....

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built up area in the first instalment. The AO observed that for the A.Y 2006-07, the AO has already held that the capital gain is to be taxed in the year of execution of the agreement of sale. However, since the assessee itself has offered the long term capital gain in the A.Y 2011-12, the AO has brought it to tax along with the capital gains on sale of the flats. While computing the long term capital gains on sale of land and on sale of the flats, the AO disallowed the claim of expenditure on .....

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ed that the assessee had offered the capital gain to tax in the A.Y 2011-12 while the AO has brought it to tax in the A.Y 2006-07 and therefore, he ought not to have brought the same to tax again in the A.Y 2011-12. We find that merely because the assessee has offered the long term capital gain on sale of land as well as the flat in the A.Y 2011-12, the AO need not bring the capital gain on sale of land to tax for the A.Y 2011-12, particularly after bringing it to tax in the A.Y 2006-07. Therefo .....

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1-12 are all rejected except to the extent of the directions given to the AO to bring to tax only the capital gains on the sale of the flat. ITA No.579/Hyd/2016 A.Y 2006-07 32. This is assessee s appeal for the A.Y 2006-07 against the levy of penalty u/s 271(1) (c) of the Act. The AO has initiated the penalty proceedings u/s 271(1)(c) of the Act for the A.Y 2006- 07 on the ground that the assessee has entered into a development agreement cum GPA but has not offered the long term capital gain to .....

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