Decided on May 28,2014

Sri P. Ramgopal Varma Appellant
Addl. Commissioner Of Income Tax, Range -13 Respondents


Saktijit Dey, Member (J) - (1.) THE present appeal of the assessee is directed against order dated 13/03/2013 passed by the CIT -I, Hyderabad u/s. 263 of the Act pertaining to AY 2008 -09.
(2.) BRIEFLY stated, the assessee an individual is pursuing his profession as film director. For the impugned assessment year, assessee filed his return of income on 07/10/2008 declaring total income of Rs. 60,64,590/ - including professional income of Rs. 60,19,257/ -. The assessee had entered into an agreement of sale on 20/03/1997 with one Sri R. Dhananjaya Reddy for purchasing a plot being No. 169 -Phase -1, admeasuring 2110 sq. yds. at Road No. 13, Jubilee Hills, Hyderabad for a consideration of Rs. 1,13,94,000/ -. As per the terms of agreement of sale assessee also paid a sum of Rs. 25 lakhs as advance to the vendor with the understanding to pay the balance sale consideration by the end of 31/05/1997 or latest by 30/06/1997 or at the time of registration whichever is earlier. As it appears, since the agreement of sale was not acted upon by the vendor, the assessee filed a suit for specific performance, registered as O.S. No. 414 of 2004 before Chief Judge, City Civil Court, Hyderabad. However, the suit was dismissed by the City Civil Court vide order dated 04/11/2006. Against such dismissal order assessee carried an appeal before the Hon'ble AP High Court, registered as CMA 47 of 2007. When the appeal was pending before the Hon'ble AP High Court both the parties agreed to settle the dispute amicably on mutually agreeable terms. Accordingly, a Memorandum of Understanding was entered into between the assessee and the land owner on 19/02/2007. As per the MoU the land owner agreed to pay an amount of Rs. 1,50,00,000/ - (including the advance of Rs. 25 lakhs paid by the assessee at the time of agreement of sale) to assessee and assessee on his part agreed to withdraw/relinquish all his claim over the property in question. Though, in the computation of income for the assessment year under dispute the assessee disclosed the amount of Rs. 1,50,00,000/ - as sale consideration received by him for transfer of plot and computed long term capital gain of Rs. 1,06,64,262/ - but at the same time assessee claimed exemption of the entire capital gain u/s. 54F of the Act towards investment in purchase of new residential house. During the scrutiny assessment proceeding the Assessing Officer called for various informations and materials from the assessee both on professional income and long term capital gain. After verifying the informations furnished, the Assessing Officer disallowed an amount of Rs. 44,73,748/ - out of the professional expenditure claimed. So far as long term capital gain is concerned, the Assessing Officer after verifying the details came to the conclusion that assessee is not entitled for exemption u/s. 54F of the Act. Accordingly, Assessing Officer completed the assessment u/s. 143(3) of the Act vide order dated 29/12/2010 determining total income at Rs. 2,12,02,600/ -.
(3.) THE CIT exercising his power u/s. 263 of the Act called for the assessment records of the assessee for the assessment year under consideration and after verifying the same was of the view that the amount received by the assessee from the land owner Sri Dhananjaya Reddy being a windfall gain should have been assessed as income from other sources and not as long term capital gain. The Assessing Officer having assessed it as long term capital gain, the CIT considered the assessment order to be erroneous and prejudicial to the interest of Revenue. Accordingly, the CIT issued a show cause notice to the assessee proposing to revise the assessment order.;

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