Ita/426/2009 Of The Commissioner Of Income Tax v. M/S Khivraj Motors

IN THE HIGH COURT OF KARNATAKA AT BENGALURU|DATED THIS THE 17 DAY OF JULY 2ZO15 PRESENT THE HON'BLE MR. JUSTICE VINEET SARAN AND. THE HON’BLE MR. JUSTICE ARAVIND KUMAR ITA NO.426 OF 2009 BETWEEN 1.THR COMMISSIONER OF INCOME-TAX, 00/1, SHILPASHREE, VIDYARANYA COMPLEX, VISHVESHWARANAGAR,MYSORE -507 OOS.MYSORE -507 OOS. 2 THR ASST. COMMISSIONER OF INCOME-TAX, | CIRCLE-9(1), JEEVAN SAMPIGE, $ FLOOR, SAMPIGE ROAD, MALLESWARAM, BANGALORE — 560 O0O3. _. APPBLLANTS (BY SRIYUTHS K.V.ARAVIND & G.KAMALADHAR —- ADVS. ) AND M/S.KHIVRAJ MOTORS, 10/2, KASTURBA ROAD,BANGALORE — 560 OO1._ RBSPONDEBENT (BY SRIYUTHS A.SHANKAR & G.VENKATESH-ADVS.) THIS [TA IS FILED UNDER SEC.260-A OF INCOME|TAX ACT 1961 PRAYING TO: 1.FORMULATE THE SUBSTANTIAL QUESTIONS OF|LAW STATBRD THRRBEBILAW STATBRD THRRBEBI 11.ALLOW THR APPBAL AND SHIT ASIDE THEORDERSPASSED|BY‘THEINCOME-TAX|APPELLATE TRIBUNAL, BANGALORE IN ITA)NO.1110/BANG/2008, DATED 31-3-2009 ANDCONFKIRM THR ORDER OF THE APPELLATECOMMISSIONERCONFHIRMINGTHEORDERPASSED BY THER ASSISTANT COMMISSIONER OFINCOME TAX, CIRCLE-9(1), BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. |ORDERSPASSED|BY‘THEINCOME-TAX|APPELLATE TRIBUNAL, BANGALORE IN ITA)NO.1110/BANG/2008, DATED 31-3-2009 ANDCONFKIRM THR ORDER OF THE APPELLATECOMMISSIONERCONFHIRMINGTHEORDERPASSED BY THER ASSISTANT COMMISSIONER OFINCOME TAX, CIRCLE-9(1), BANGALORE, IN THE INTEREST OF JUSTICE AND EQUITY. | THIS [TA COMING ON FOR FINAL DISPOSAL THIS|DAY,ARAVIND KUMAR .JDELIVERED THE FOLLOWING: JUDGMENT Revenue is in appeal assailing the order of theIncome Tax Appellate Tribunal (ITAT) passed in ITA|No.1110/Bang/2008 dated 31.03.2009 whereunder the|appeal filed by the Revenue questioning the order of theCIT (Appeals), came to be dismissed by accepting the|plea of the respondent-assessee and allowed the appeal|of the assessee which was allowed, came to be!confirmed. 2. The assessee is a firm and was in occupation ofthe premises No.135/1, Residency Road as a tenant for|long numbers of years, having taken on lease from|Sri.Mohd. Musa Sait Wakf. On account of the said landlord intending to develop the said property, assessee|was approached for vacating the same and after|negotiation, land lord offered portion of the built area totenant in lieu of tenant surrendering his tenancy rights|and as agreed upon. Pursuant to the said negotiation, a|memorandum of understanding (MOU) was entered|between the parties on 17.9.1999 whereunder it was|agreed that the first party (landlord) would execute deedof lease with regard to 18% of undivided share in the|property in question and proportionate super built area|for a period of 60 years in favour of tenant. In|furtherance of said memorandum of understanding, theNeCessalypermissions/approvalsWeETEtakenandthereafter a Tripartiate agreement was entered into on|23.08.2001 between the parties i.e. the land lord (1[27] party), the tenant (assessee-2[0;]party) as well as thedeveloper (3[:;]party). 3. Assessee filed his Return ot Income tor theassessment year 2005-06 in which it was declared thatassessee has received 22,100 sq ft. of built up area in)the commercial complex, which was also pursuant to)the MOU and the agreement referred to herein supra.Capital gains was arrived at Rs.1,/6,88,000/- by taking)the cost of construction of 22,110 sq.ft. at Rs.800/- per)sq.ft. by the Assessee. However, the Assessing Officer,after obtaining information from the builder with regard to the cost of construction which was indicated by the.builder to be at Rs.19,42,79,237/-, adopted the same.for the purposes of arriving at the correct capital gains)and accordingly made certain additions by adopting thevalue as indicated by the builder. Thereafter a tax)demand was raised on the assessee, who beingagerieved by the said order of assessment filed an) appealbeforetheCIT.(Appeals). AppellateCommissioner after having noticed that the dispute waswith|regardTOcalculationot|valueotLTOSSconsideration received by the assessee held that|advertisement cost, extra amounts paid to land lord andthe assessee are not part of actual cost of construction.Hence, the capital gains as shown and calculated by theASSESSECE CalfTO|be|accepted and _ additiooftRs.03,26,96/7/- made by the Assessing Officer came tobe deleted. 4. Revenue carried the matter in appeal before theTribunal which did not find favour and accordingly it|was held that Long Term Capital Gains arrived at by theassessee is fair which does not require interference and|the addition made on this amount which was deleted by|the CIT (Appeals) came to be confirmed vide order dated|31.83.2009, which is under challenge in this appeal. 5. We have heard the learned Advocates 1.e.|ori.K.V.Aravind, learned counsel appearing for the|Revenue and sSri.A.Shankar, learned counsel appearingfor the assessee. 6. Sri.K.V.Aravind would contend that Tribunal|has committed an error in proceeding to decide the|matter on merits when the assessment order itself was|set aside by the Commissioner in exercise of his power|under Section 263 of the Income Tax Act (for short|hereinafter referred to as ‘the Act’ for short) with a|direction to the Assessing Officer to redo the same. As|such the Tribunal ought to have held that appeal by theassessee before CIT (A) itself had become infructuous|and accordingly it should have allowed the appeal filed|by the revenue. He would further contend thatAssessing Officer, on the basis of 18% of the project cost|of Rs.19.43 crore, had arrived at the capital gains whichcame to be deleted by the Appellate Commissioner| which was without taking into consideration the|additional expenditure incurred by the assessee and)also not noticing the fact that agreement which was)relied upon by the assessee was subject to MOU and the.issue regarding cost of construction was not required to)be examined inasmuch as it is the percentage ofconstructed area i.e., 18% of super-built area to which|the assessee was entitled which was to be taken into|consideration and it was this precise exercise which wasundertaken by the Assessing Officer and the mode.adopted by the Assessing Officer and same having not,been disturbed by the Appellate Commissioner, said)Authority could not have allowed the appeal by assessee by accepting the method of calculation as done by theassessee which was based on a clause in the agreementrelating to valuation which indicated the cost ofconstruction at Rs.800 per sq.it. and contends same is)erroneous. He further submits that on these grounds|thesubstantialquestionsotlawformulatedbe. considered in favour of the Revenue and against the|aSS€@SSECEC 7/7. Per contra, learned counsel for the assessewould support the orders passed by the Appellate|Commissioner as well as the Tribunal and contends|that in the return of income filed by the assessee, the|valuationasindicatedintheagreementdated23.8.2001 clearly indicated the basis for calculation ofcapital gains and the cost of construction having been|indicated at Rs.800/- per sq it., proportionately in|respect of 18% of total construction to which the|assessee was entitled was calculated and adopted for|the purposes of long term capital gains and it is not the|value of construction which was adopted by the builder|which would be the basis and hence he submits that|finding recorded by the Appellate Commissioner as well|as the Tribunal is not liable to be interfered. He would|also submit that under Section 45 of the Act, the' computation of capital gains is to be made and for the|said purpose Section 48 of the Act requires to be looked|into which would indicate that for the purposes of|arriving at the valuation, it is full value of consideration|as agreed to between the parties which has to be taken|into consideration. Hence, he submits that substantial|questions of law be answered in favour of the assessee|by rejecting the appeal of the Revenue. | computation of capital gains is to be made and for the|said purpose Section 48 of the Act requires to be looked|into which would indicate that for the purposes of|arriving at the valuation, it is full value of consideration|as agreed to between the parties which has to be taken|into consideration. Hence, he submits that substantial|questions of law be answered in favour of the assessee|by rejecting the appeal of the Revenue. | 8. This Court has admitted the appeal to considerthe following two substantial questions of law: a)Whether the Tribunal twas correct inproceeding to decide the matter on meritswhen the assessment order, subject matterof the appeal was_ set-aside by theCommissioner of Income Tax under Section263 of the Act with a direction to theAssessing Officer to redo the same andconsequentlytheappealbeforetheTribunal has become infructuous?proceeding to decide the matter on meritswhen the assessment order, subject matterof the appeal was_ set-aside by theCommissioner of Income Tax under Section263 of the Act with a direction to theAssessing Officer to redo the same andconsequentlytheappealbeforetheTribunal has become infructuous? @"Whether the Appellate Authorities werecorrect in holding that the addition ofRs.53,26,567/- made by the AssessingOfficer on the basis of the 18% of theproject cost of Rs.19.43 crores is liable tobe|deletedwithouttakingintocorrect in holding that the addition ofRs.53,26,567/- made by the AssessingOfficer on the basis of the 18% of theproject cost of Rs.19.43 crores is liable tobe|deletedwithouttakinginto consideration the additional expenditure|incurredbytheaSsSSCSSCforextraamenities? Q.|We have heard learned counsel for the)parties and perused the records. RE.SUBSTANTIAL QUESTION OF LAW NO.1% 10.Insofar as this question of law is concerned,we are of the considered view the said issue is no more|res integrain view of the fact that in ITA NO.775/2009we have answered the same in favour of the assessee|and as such it does not detain us long to hold that|answering said question of law would only be ajrepetition. In the said appeal, which was also between|the same parties, the question has been answered in|favour of the assessee and accordingly it is answered. _ RE. SUBSTANTIAL QUESTION OF LAW NO.2 ll.Assessee in the instant case in the return ot income filed has adopted the cost of the built area of| 22,112 sq.it. at Rs.800/- per sq.ft. and arrived at the|value of Rs.1,76,88,000/- for the purposes of long term|capital gains. Besides this, Rs.20,00,000 paid by the|developer towards non-refundable deposit has also beenincluded, which was also reflected in the agreement|dated 23.8.2001. Accordingly, the same was also|offered for long term capital gains. However, the|Assessing Officer without rejecting the said calculation|adopted by the assessee has proceeded to calculate the|long term capital gain on the basis of the information|that was received from the developer/builder whose|books of accounts indicated that cost of construction|was Rs.19,79,237.54 and in view of 18% of super built|area that was agreed to be handed over to assessee, theassessing officer proportionately apportioned the cost ofconstruction to the assessee. The proportionate project|cost which was assigned to the assessee was arrived at|by the Assessing Officer at Rs.3,49,70,263/- and|accordingly, the additions came to be made. 12. The core issue relates to calculation of gross.consideration received by the assessee. A perusal of theassessment order would clearly indicate the calculation|in respect of cost of construction made by the assessee|has not been rejected by the Assessing Officer.|However, he has substituted a different mode viz.|adopted different valuation i.e., project cost valuation onthe basis of cost of construction indicated by the builderin its books of accounts and same has been taken into|consideration as the total project cost. In fact, AppellateCommissioner has noticed that the ledger account of|the developer as on 31.3.2005 was also indicating that|Rs.1,42,84,405/- was the expenses booked on account|of advertisement charges incurred and which had been|paid by developer towards cost of construction and_developer had also taken into consideration the|amounts paid to the assessee for vacating the premises|and the amount paid to the land lord towards cost of|construction or project. On the said basis it has been| held that these amounts would not form part of cost ofconstruction. The non-refundable amounts paid to the|land lord as well as the assessee was to acquire the|vacant possession of the property in question and|remotely taken up held to be part of cost of constructionand so also advertisement cost which had been incurredby the developer. What was agreed to between the|parties under the Tripartiate agreement 23.8.2001 was|that the assessee was to be given on lease 18% of the|undivided share in the land and proportionate super|built area. At this juncture it would be apt to note that|the valuation as adopted by the parties and agreed to|under.theTripartiate agreementwith|regardTO|construction reads as under:- CONSIDERATION: !,"The Third party shall pay a consideration|of Rs.1,40,00,000/- (Rupees One CroreForty Lakhs only) to the First party, in thefollowing manner:- (a)Rs.10,00,000/-(RupeesTenLakhs|only) already paid by Draft No.1659933 date 15.09.1997 drawn on Lord Krishna.Bank Ltd., payable at Chennai; (b) Rs.1,30,00,000/- (Rupees One CroreThirty Lakhs only) on receipt of No-Objection Certificate under Chapter XX-C.of the Income Tax Act, 1961, against)delivery of possession of the scheduleproperty and against execution of a power|of Attorney and /or registration of lease|deed as per Clause 19.3 below whicheveris later; VALUATION: For the purpose of the valuation of thelease of the undivided 50% (Fifty percent)share in the land in favour oft the ThirdParty or anyone nominated by the ThirdParty is arrived at as under:- !3"Approximately 50,000 sq.ft.super built-up area i.e., 50%.constructed super built up |area at the rate of Rs.800/-.per sq.it of the cost of the |construction. Rs.4,00,00,000/- !@"Consideration | Rs.1,40,00,000/- Total Rs.5,40,00,000/-. 13. A perusal of the above clause would indicate for the purposes of valuation of the lease of undivided| 00% share in the land in favour of the third party|(developer) has been arrived at Rupees Four Crore by|calculating 50,000 sq.ft. as the super built up area Le.|00% of the constructed super built area by adopting therate of construction at Rs.800/- per sq.ft. and|accordingly, the total sum payable has been arrived at|RUPEESHourCroreandtheconsiderationotRs.1,40,00,000/- paid to the land lord has also been|included in the said valuation. In fact it requires to be|noticed at this juncture itself that developer has|provided certain extra amenities in respect of 18% of|super built area to be delivered to the assessee for|which the assessee has paid a sum of Rs.90,95,695/-|which also came to be allowed by the Assessing Officer. 14. The cost of construction having been agreedupon between parties at Rs.800/- per sq. ft. and same|being the full value of consideration which was agreed|to between the parties and which was not rejected by| 14. The cost of construction having been agreedupon between parties at Rs.800/- per sq. ft. and same|being the full value of consideration which was agreed|to between the parties and which was not rejected by| the Assessing Officer by assigning reasons, same ought|to have been accepted. We are of the considered view|that amount of Rs.1,40,00,000/- paid to the land lord tobe accepted as part of actual construction and as such|we are of the view that the finding arrived at by the|Appellate Commissioner at Paragraph 6 by holding|payment of Rs.1.40 crores made to owner and amount|paid to assessee to vacate the premises had nothing to|do with the construction and it is also held that same isin consonance with the Tripartiate Agreement entered|into between the parties and in that view of the matter itis to be held that the Appellate Authorities were correct|in holding that the addition of Rs.56 lakh made by the|Assessing Officer on the basis of project cost indicated|by the developer is liable to be deleted. The Assessing|Officer has not gone into the issue of valuation adopted|by the assessee, about and with regard to its|correctness, the CIT (appeals) has proceeded to delete|the additions made by the Assessing Officer on the facts obtained which we find that there is no infirmity. Said|reasoning is just and proper. — 1S. Hence, we are answering the substantial questions of law in the affirmative i.e. in favour of the|assessee and against the revenue. — 16. Hence, the following:- ORD EB R| ,"Appeal is hereby dismissed; 11)Order passed by Income Tax Appellate| Tribunal, Bangalore Bench, Bangalore, in) ITA No.1110/Bang/2008 dated 31.33.2009 is hereby affirmed. | rs Sd/- JUDGE Sd/-. JUDGE