TMI Blog2021 (2) TMI 29X X X X Extracts X X X X X X X X Extracts X X X X ..... ndex base of financial year 2012- 13, while the entire payments were made for freehold charges / stamp duty etc in fy:2011-12. Thus, the cost inflation index base for fy: 2012-13 to be 852 was adopted while computing income from long term capital gains, while the cost inflation index for fy: 2011-12(ay:2012-13) was 785 which ought to have been applied to cost of improvement being freehold conversion charges, stamp duty etc. Since the payment for freehold conversion charges, stamp duty etc. is made in the previous year relevant to impugned AY , there is no necessity of applying cost inflation index and actual payment made towards freehold conversion charges, stamp duty etc. ought to had been claimed/deducted while computing income chargeable to tax under the head income from long term capital gains. Similar , error crept in while indexing the cost of acquisition of the property by applying cost inflation index of 852 instead of 785 . Thus, to this extent the reassessment passed by AO was erroneous so far as prejudicial to the interest of Revenue which requires to be revised by AO and proceedings u/s 263 - Decided partly in favour of assessee. - ITA No. 68/ALLD/2018 - - - Dated: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the A.O. clearly reflects that the full sale value of the property was taken as ₹ 602,01000/- which is the valuation considered by the registration authorities for stamp duty purposes. 5. Because the order of the CIT is bad both on facts and in law. The Assessee reserves right to adduce additional grounds. 3. The brief facts of the case are that re-assessment in the case of the assessee namely Shri Sanjay Majumdar was made u/s. 147 r.w.s. 143(3) of the 1961 Act, vide reassessment order dated 24.06.2016 , as in the opinion of Revenue , income by way of long term capital gains earned by assessee had escaped assessment , which had led to reopening of the concluded assessment by Revenue within the provisions of Section 147/148 of the 1961 Act. The income of the assessee as re-assessed by ld. Assessing Officer( hereinafter called the AO ) , to the tune of ₹ 36,84,950/-, vide reassessment order dated 24.06.2016 , which reassessment order was later rectified under the provisions of Section 154 of the 1961 Act , dated 27.02.2017 as mistake apparent from records had crept in the aforesaid reassessment order, and income of the assessee was computed at S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent is not cost of improvement of land . It was submitted by assessee that agreed sale price as per agreement of sale dated 15.07.2011 was inclusive of amount of freehold conversion charges . The assessee referred to page 8 and 9 of the agreement to sale. The assessee submitted that it was a condition in the agreement to sale that property should be converted into freehold within currency of the agreement. It was also claimed by assessee that conversion of land from leasehold to freehold , had fetched higher price for the property for assessee. The assessee referred to clause 3 at page 14 of agreement to sale to support its stand that the deduction towards cost of improvement was rightly claimed by assessee while computing long term capital gains chargeable to tax. Thus, the assessee submitted before ld. Pr. CIT during the course of revisionary proceedings that the reassessment order passed by AO was neither erroneous nor prejudicial to the interest of Revenue and hence revisionary proceedings initiated by ld. Pr. CIT within provisions of Section 263 of the 1961 Act, be dropped . The assessee also relied upon certain judicial precedents to support his contentions which are found me ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ehold charges. In this agreement of sale it was provided that transfer deed shall be registered after conversion of Nazul land/leased property into freehold land. The assessee alongwith other joint owners has, therefore, entered into this agreement for sale of the property accordingly. The purchaser company had paid an advance of ₹ 2,37,29,000/- to the joint owners in which assessee is one of the owners. As per this agreement joint owners had to file an application for conversion of aforesaid Nazul plot of land No. 6 to freehold land and was to incur the expenses like conversion charge from the money so advanced by the purchaser. Such expenditure under reference is included in the sale consideration, hence it becomes very obvious that assessee has not incurred any such expenditure of ₹ 41,57,076/- as cost of improvement of the property under reference. Though agreement, property has been sold out, but responsibility was taken by the joint owners including assessee for getting converted into freehold land and assessee including joint owners was not liable for incurring any such expenditure from its own pocket, rather such expenditure of ₹ 1,43,62,000/- is of purcha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration because the actual sale proceed should have been ₹ 6,02,01,000/- and not of ₹ 4,53,62,000/-. Thus from this angle also such proportionate amount of ₹ 41,57,076/- is not the actual expenditure of the assessee rather it has been incurred from the advance given by purchaser after sale agreement. 3.4 As regards various arguments of assessee or Ld. AR it is pertinent to mention that none of the arguments against notice u/s 263 is tenable. It is very open fact that the purchaser, namely Amity Infra Developer Pvt. Ltd. has incurred the expenditure as it has been included by it in its cost of acquisition of the same land. Therefore, Amity Infra Developer Pvt. Ltd. will definitely show an amount of ₹ 4,53,62,000/- as its cost of acquisition of property hence that expenditure is of the buyer and not of the assessee. If contrary arguments is advanced by the assessee that out of advance such expenditure has been incurred hence that expenditure is of the assessee, can be contradicted or refuted with the fact that the fair market value of the property was of ₹ 6,02,01,000/- and not of ₹ 4,53,62,000/-. 3.5 The further argument that case of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at case the assessee had claimed deduction u/s 80 IA which was allowed by the Assessing Officer. Subsequently, CIT u/s 263 had disallowed the deduction granted by the Assessing Officer. That assessee went to ITAT who has allowed the appeal. On further appeal by the Department, the Hon'ble Supreme High Court has set aside the order of the ITAT. On further appeal by the assessee, it was held that instead of answering certain issues by the High Court order was set aside where as Hon'ble Supreme Court has held that such issue ought to have been remitted to the Tribunal, hence matter was restored back for fresh adjudication by the CIT(A). Similarly, the set of facts of Atlantis Multiplex Pvt. Ltd. Vs. CIT ITA No. 45 and 65 Allahabad 2012 dated 30.09.2016 is altogether different. In that case issue was related to rental income which was income from house property or business income. The Assessing Officer after investigation found that the main business was running and leasing of a commercial mall which was a business income, hence in the light of articles of association of the company, it was held that view of the Assessing Officer was not prejudicial to the interest of revenue h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply the provision of law properly while making the fresh assessment in the light of above observation/finding. Needless to say that while making the fresh assessment ASSESSING OFFICER should give full and proper opportunity to the assessee for his representation and submission of necessary evidences in support of his contention. Thus assessment order dated 24.06.2016 is set aside u/s 263 t for fresh assessment. 5. The assessee being aggrieved by revisionary order dated 21.12.2017 passed by learned Pr. CIT u/s 263 of the 1961 Act has filed this appeal before tribunal. The hearing in this appeal was held through video conferencing mode through virtual court. The learned counsel for the assessee submitted before the Bench that cost of conversion of property from leasehold to freehold was paid by assessee which was for better title of the property. It was submitted by ld. Counsel for the assessee that Ld. Assessing Officer while framing assessment has gone through agreement to sale dated 15.07.2011 and also sale deed dated 24.04.2012(correct date is 25.04.2012). It was submitted that after due application of mind, the AO framed re-assessment against the assessee , wherein AO rig ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and not of the assessee. It was submitted by ld. CIT-DR that agreement to sale was entered into for consideration of ₹ 4.53 crores, while market value of the property was ₹ 6.02 crore , which included freehold charges and assessee is erroneously claiming that sale consideration of ₹ 4.53 crores included freehold charges . The ld. CIT-DR submitted that the assessee has taken advance from buyers to pay for freehold charges and hence it was submitted by ld. CIT-DR that ld. Pr. CIT has correctly passed revisionary order dated 21.12.2017, u/s. 263 of the 1961 Act setting aside reassessment order dated 24.06.2012 passed by AO u/s 143(3) read with Sec. 147 of the 1961 Act. 6. We have considered rival contentions and perused the material on record including orders passed by authorities. The adjudication of this appeal depends upon careful reading , analysis and interpretation of clauses of agreement to sell dated 15.07.2011 , copy of deed of freehold dated 13.03.2012 and sale deed dated 25..04.2012 , which are placed in paper book filed by assessee. We have carefully gone through agreement to sell dated 15.07.2011, copy of deed of freehold dated 13.03.2012 and sale dee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Allahabad and the total Area of the aforesaid Nazul Land 3102 Sq. Yards = 2593.58 Sq. Metres,(together with all rights, title and interest) and has offered a sum of Rs,4,53,62,000/- (Rupees Four crores Fifty Three Lakhs and Sixty Two thousand only) (which amount includes freehold premium, freehold conversion stamp duty, etc. amounting to ₹ 1,43,62,000/-) as its sale consideration which is the maximum and most adequate price which the aforesaid property could fetch at present. Accordingly, the First Party agrees to sell to the Second Party the aforesaid property with all their right, title and. interest in respect of the aforesaid property more fully described in the schedule annexed hereto for a sale consideration of ₹ 4,53,62,000/- (Rupees Four crores Fifty Three Lakhs and Sixty Two Thousand only) subject to the terms and condition mentioned herein. AND WHEREAS the execution of transfer deed and its registration in respect of the aforesaid property may be done after the aforesaid nazul land is converted into freehold land or as per lease deed mentioned aforesaid and as such the parties hereto have agreed to execute this deed of agreement and agree to abide by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ay 2011 drawn on ING Vysya Bank, Civil Lines branch, Allahabad in favour of Sudeb Majumdar for an amount of ₹ 37,29,000/-(for freehold application) the receipt of which is hereby acknowledged by the First Party and the balance sale consideration of ₹ 2,16,33,000/- (Rupees Two Crores Sixteen Lakhs Thirty Three Thousand only) shall be paid by the Second party to each of the First party as provided hereunder. Thus , it could be seen that ₹ 37,29,000/- out of total advance of ₹ 2,37,29,000/- was paid by buyers to sellers towards freehold application money to file application with State Government for conversion of leasehold Nazul land into freehold to perfect their ownership title of the property. 6.5 Before proceeding further, it is important to understand meaning and concept of Nazul land. We have observed that the Nazul land is a Land held by Government in public trust, in perpetuity , the possession of which can be transferred by way of lease or sale . It is the land which is confiscated from Zamindars, Rajas and Nawab etc. . There is a Uttar Pradesh Nazul Manual , 1949 which governed the Nazul lands in U.P.. Under the Nazul Manual, the Nazul land ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... will bear, the same out of the money advanced by the Second Party under this agreement. The Second Party shall not be entitled to claim any refund whatsoever from the first Party, in respect of the payments made by the First Party under this clause. 5. Whenever any demand is raised / made by or on behalf of the State Government for payment of the balance of the freehold conversion charges /premium, etc. during the period of validity of this agreement to sell, the Second Party shall forthwith pay to the First Party the amount so demanded out of the balance of the total sale consideration mentioned here in above . On receiving the said amount from the Second Party, the first party shall, without undue delay, deposit the same with the State Government. 6. As soon as the aforesaid nazul land is converted and declared freehold land within the period of validity of this agreement to sell, the First Party shall give an intimation in writing to the Second Party named above at his address mentioned first and the Second Party shall pay the entire of the total sale consideration due, to the Seller First Party forthwith. Thereafter, the First Party shall execute the transfer / s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een transferred only after the land is converted into freehold land , deed is executed and conveyance charges/stamp duty paid for getting it converted into freehold in the name of sellers who are the registered lessee before ultimately transferring the land to the buyers, certainly the said freehold cost/charges were necessarily required to be incurred for removing the impediment to sale and getting the said land ultimately transferred to buyers. It will also improve the title and marketability of the property. The covenants between the two parties clearly provided that the total sale consideration was ₹ 4,53,62,000/- and the freehold charges to the tune of ₹ 1,43,62,000/- were included in the aforesaid sale consideration and was not to be paid by buyers over and above the said amount of sale consideration agreed between the buyers and sellers. 6.7 It is further provided in the agreement to sell , dated 15.07.2011 that in case the sellers fails to execute and get the transfer/sale deed registered , the buyers can after making full payment of sale consideration to the buyers shall have the right to get the transfer/sale deed executed and registered through the court o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d immediately thereafter , the agreement to sell shall stand rescinded , and the sellers will forfeit all the amounts paid by buyers under this agreement. The relevant clause in the agreement to sell , dated 15.07.2011 is reproduced hereunder: 14. That the period of validity of this agreement to sell shall be thirty six (36) months from the date of execution of this agreement to sell. Immediately thereafter, this agreement to sell shall stand automatically rescinded and the entire amount paid by the second party under this agreement to sell shall stand forfeited by the first party. 15. If due to unforeseen reasons (like government policies) the aforesaid property is not converted into freehold by the State Government in favour of the first party within 18 months from the date of execution of this agreement to sell , the Second Party shall forthwith pay a further sum of ₹ 1,10,00,000/- ( Rupees one crore and ten lakhs only) to the first party and the First Party shall hand over possession of the property to the Second Party immediately thereafter. Further, on such an eventuality , the Second Party shall have the option , within the period of validity of this agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on which will stood increased to that extent and consequently the deduction on account of cost/charges towards improvement to the property shall also go up, so much so that it will be tax neutral. These are terms agreed by two willing independent parties to contract and they are within their rights to arrange their affairs, so long as it does not result in defrauding Revenue or infringing statutory provisions . There is nothing unusual in these clauses, rather it strengthen the stand of the assessee that freehold conversion charges, stamp duty etc. are included in the sale consideration agreed upon by buyers and sellers, and are towards improvement of title to the property or for removing impediment in the transfer of the property, which are to be deducted while computing income from long term capital gains on sale/transfer of the aforesaid property. Thus, in our considered view the assessee has rightly claimed the deduction on account of improvement in the property being improvement in title of the property on being converted from leasehold Nazul land to freehold property , as property is bundle of rights and getting property converted from leasehold to freehold will certainly imp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as to the agreed sale consideration for the property, mode of payment and manner in which it is to be discharged. The parties are within their rights to arrange their affairs in the manner best suited to them , so long it does not violate statutory provisions or led to defrauding of Revenue. There was an impediment to transfer this leasehold Nazul Property unless the property is converted into freehold and hence to obviate the same , the agreement to sell was entered into with long currency period of 36 months so that sellers can get the aforesaid leasehold property converted into freehold in their names , in accordance with policy of U.P.State Government and there is a mention of several of orders passed by U.P.State Government in connection with dealing with Nazul leasehold land and its conversion into freehold. There is no material on record to suggest that any attempt is made by assessee to defraud Revenue. The ld. PCIT is of the view that full value of consideration of the said property was ₹ 6,02,01,000/- , while agreed sale consideration (including freehold conversion charges, stamp duty etc. ) was to the tune of ₹ 4,53,62,000/- . It is observed that while comput ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eassessment order. At the same time , we are in agreement with ld. CIT-DR that mistake has crept in reassessment order as cost of improvement is indexed by taking cost inflation index base of financial year 2012- 13, while the entire payments were made for freehold charges / stamp duty etc in fy:2011-12. Thus, the cost inflation index base for fy: 2012-13 to be 852 was adopted while computing income from long term capital gains, while the cost inflation index for fy: 2011-12(ay:2012-13) was 785 which ought to have been applied to cost of improvement being freehold conversion charges, stamp duty etc. Rather, since the payment for freehold conversion charges, stamp duty etc. is made in the previous year relevant to impugned ay , there is no necessity of applying cost inflation index and actual payment made towards freehold conversion charges, stamp duty etc. ought to had been claimed/deducted while computing income chargeable to tax under the head income from long term capital gains. Similar , error crept in while indexing the cost of acquisition of the property by applying cost inflation index of 852 instead of 785 . Thus, to this extent the reassessment passed by AO was erroneous s ..... X X X X Extracts X X X X X X X X Extracts X X X X
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