BISWAJIT BOSE,NEW PANVEL vs. PR CIT -1, THANE

As per the covenants of the agreement the assessee and three others owners will get 50% of constructed area of their share. As per department the assessee had relinquished his rights over the property vide development agreement which come under the definition of transfer as the define section 2(47) of the IT Act, 1961. Therefore, assessee was liable for capital gains for assessment year 2013-14. Accordingly, the case was the assessee was reopened by issue of notice u/s 148 of the Act on 19-02-2018.

During the assessment proceedings u/s 143(3) r.w.s. 147 of the Act assessee was asked to furnish certain information relating to his income and transaction of development of property jointly. Assessee furnished relevant information for perusal of the assessing officer. In his reply assessee quoted the decision of ITAT, Pune in the case of ITO, Ward 2(1), Pune v/s Vilas Babanrao Rukari (HUF) (ITA No. 1640 of 2014, Dated 25-05-2018).

The AO considered the reply of the assessee in light of submission made along with the case of Babanrao Rukari (HUF) (Supra) and accepted the figures of returned income of the assessee.

Thereafter PCIT-2, Thane issued a notice u/s 263 of Act as placed on page no. 9 of the paper book. In response to this assessee filed his reply, but PCIT-2, Thane did not found the same as convincing and passed the order u/s 263 directing the AO to do the assessment de-novo.

Aggrieved with the order of Ld. PCIT-2, Thane assessee preferred this appeal before us. We have gone through the order of the AO, notice issued by the Ld. PCIT, reply of the assessee before the PCIT and other documents filed before us in the paper book dated July 8 2022.

With reference to documents mentioned above we observed following facts emerged out of various orders/notice/submissions as under: i. Assessee entered into a joint development agreement with three others dated : 10-10-2012 (original agreement); ii. Assessee entered into another joint development agreement with four others dated : 26-12-2013 (new agreement by cancelling the original agreement); iii. Assessee’s case was reopened u/s 148 because of point i. Mentioned (supra) and assessed u/s 143(3) r.w.s. 147 of the Act; iv. During the course of assessment proceedings assessee’s supplied and AO discussed all the relevant facts and law applicable to the matter; v. Thereafter Ld. PCIT found the order of AO as erroneous and prejudicial to the interest of revenue hence passed order u/s 263 of the Act; vi. We found that AO has discussed the whole issue in detail and applied his mind also. Once a deliberate exercise during the course of assessment proceedings has been done, the order can’t be erroneous. Submissions of the Appellant/Assessee That the issue under consideration was specifically examined by the AO during the course of re-assessment, and the AO took a possible view thereof, therefore the revision powers cannot be exercised to merely find out if the earlier view taken is erroneous. A. The Appellant submits that the issue under consideration i.e., year of taxability of the capital gains accruing to the Appellant on the transfer of the rights in the immovable property for the purposes of development agreement was specifically looked into by the AO during the course of re-assessment proceedings. B. The Appellant had received an ancestral flat from his grandfather. For the purpose of developing the property, the Appellant along with three other members of the family (who were joint owners) entered into a Joint Development Agreement dated 10.10.2012 with M/s Rupayan Projects Private Limited. C. Subsequently, the Appellant entered into another development agreement dated 26.12.2013 along with the said three members of the family and another person being the neighbour, for the development of the same property along with the neighbouring property in order to have a large area for better development. Refer to Page 21 to 58 of the Paper-book I. D. The said agreement dated 26.12.2013 cancelled the development agreement dated 10.10.2012 and laid out fresh terms, conditions, stipulations and obligations (Refer Page 15 of the agreement dated 26.12.2013, last recital). Refer to Page 59 to 103 of the Paper-book 1. E. As per the agreement dated 26.12.2013, the Appellant was entitled to receive a flat. The possession of the said flat under the agreement was received by the Appellant in the financial year 2017-18. Accordingly, the Appellant offered the capital gains arising there from for taxation in the AY 2018-19.

In the meantime, the AO received the information from ADIT(I&CI), Kolkata that the Appellant along with three others had executed a Joint Development Agreement with M/s Rupayan Projects Pvt. Ltd, Kolkata vide agreement dated 10.10.2012. That in lieu thereof, the Appellant and others got 50% of constructed areas of their shares. Thus, the Appellant was required to offer capital gains on such transaction during the year under consideration. Basis this information, the AO reopened the assessment of the Appellant for the year under consideration.

During the course of re-assessment, the Appellant filed its reply dated 14.02.2021 submitting that the Appellant is not liable to capital gains tax during the year under consideration. Refer to Page 11 to 17 of the Paper-book.

Having examined the submissions of the Appellant, the AO accepted the returned income of the Appellant and passed the assessment order dated 23.11.2018 under section 143(3) r.w.s. 147 of the Act. Refer to Page 03 to 08 of the Paper-book I.

In Infinity InfoTech Parks Ltd. [2018] 407 ITR 137 (Calcutta), the Calcutta High Court was concerned with the point of taxability in case where the assessee entered into a joint development agreement of land owned by it in terms of which a part of constructed area was to be given to assessee and remaining portion was to be kept by builder. In such facts and circumstances, the Court held that no transfer within the meaning of section 2(47) (v) would take place until the builder constructed said property and handed over a portion of the same to assessee as per terms of agreement.

The ITAT Mumbai in Aarti Sanjay Kadam v. ITO [2018] 172 ITD 362 (ITAT- Mum.), in similar set of facts, held that where per the terms of development agreement entered between assessee and developer, the assessee receive built-up residential area on completion of project, it could not be said that capital gain had accrued in the year of agreement.

It is apparent from the above that the AO has clearly examined the issue under consideration before Your Honours and took a plausible view that the liability to capital gains tax arises in the year when the consideration in lieu of joint agreement is received by an assessee.

In this regard, the Appellant submits that when the AO has taken one of the possible views, jurisdiction under section 263 of the Act cannot be exercised to substitute the view of the AO with that of the Commissioner's.

In CIT v. Gabriel India Ltd [1993] 203 ITR 108 (Bombay), it was held that Section 263 does not visualise a case of substitution of the judgment of the Commissioner for that of the ITO, who passed the order, unless the decision is held to be erroneous. Cases may be visualised where the ITO while making an assessment examines the accounts, makes enquiries, applies his mind to the facts and circumstances of the case and determines the income either by accepting the accounts or by making some estimate himself. The Commissioner, on perusal of the records, may be of the opinion that the estimate made by the officer concerned was on the lower side and left to the Commissioner he would have estimated the income at a figure higher than the one determined by the ITO. That would not vest the Commissioner with power to re-examine the accounts and determine the income himself at a higher figure. It is because the ITO has exercised the quasi- judicial power vested in him in accordance with law and arrived at a conclusion and such a conclusion cannot be termed to be erroneous simply because the Commissioner does not feel satisfied with the conclusion. The decision of the ITO could not be held to be 'erroneous' simply because in his order he did not make an collaborate discussion in that regard. It may be said in such a case that in the opinion of the Commissioner the order in question is prejudicial to the interests of the revenue. But that by itself will not be enough to vest the Commissioner with the power of suo motu revision because the first requirement, viz., that the order is erroneous, is absent 15. In Malabar Industrial Co Ltd v. CIT [2000] 243 ITR 83 (SC), the Supreme Court held that there must be two conditions namely that the order of assessment is erroneous and that the order is prejudicial to the interests of the Revenue which must be satisfied before the Commissioner may invoke his powers under Section 263 of the Act. The Court held that every loss of tax cannot be said to be prejudicial to the interests of the Revenue. If two views are possible, and the AO has adopted one of those views, the order of assessment cannot be prejudicial to the interests of the Revenue. However, when the Assessing Officer does not apply his mind to the issue at hand or violates any of the principles of natural justice, the order shall be prejudicial to the interests of the Revenue. Also, an incorrect assumption of facts or incorrect application of law by the AO would make the order of assessment erroneous and prejudicial to the interests of the Revenue.

In the instant case as well, on the basis of the above submissions, the AO concluded that the Appellant is not liable to capital gains on the consideration due to him pursuant to the entering of the joint development agreement. Therefore, exercise of jurisdiction under section 263 by the Respondent is uncalled for. That the possession of the flat in lieu of the Joint Development Agreement was received by the Appellant only in the financial year 2017-18 and thus, offered the same for taxation during the AY 2018-19.

The Appellant submits that the possession of the constructed flat, which was the consideration receivable by the Appellant under the development agreement, was received by the Appellant only during the financial year 2017- 18. Therefore, the taxability of the capital gains arose to the Appellant during the said year. The Appellant, thus, duly offered the same for taxation in his return of income for the AY 2018-19.

Relevant extract of section 2(47) and section 45(5A) of the Act are reproducing below: 2(47) ["transfer", in relation to a capital asset, includes,— (i) the sale, exchange or relinquishment of the asset ; or (ii) the extinguishment of any rights therein ; or (iii) the compulsory acquisition thereof under any law ; or (iv) in a case where the asset is converted by the owner thereof into, or is treated by him as, stock-in-trade of a business carried on by him, such conversion or treatment ;] [or] [(iva) the maturity or redemption of a zero coupon bond; or] [(v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in section 53A of the Transfer of Property Act, 1882 (4 of 1882) ; or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in, a co- operative society, company or other association of persons or by way of any agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.

To charge the assessee conditions of section 2(47) and section 45(5A) has to be fulfilled in this case at the time of adjudication of the agreement there was no monitory benefit being accrued to the assessee. As per the JDA, land was no transfer only a right to development was handed over to the developer and capital gains in the hand of the assessee can only accrue when after completion of the construction and registry of the property is being done in the hands of assessee as far as developer for their respective shares.

Moreover section 45(5A) introduced in the statute with effect from assessment year 2018-19. Introduction of the section with effect from assessment year 2018-19 can have two implications, i.e. such types of transactions made taxable with effect from assessment year 2018-19 or the introduction of the section is clarificatory in nature. If we consider the first preposition than the transaction itself was not liable to tax and even if we consider the second preposition, in that case also it can be reasonably assumed that the position of law was not clear before this section was inserted.

In that case one of the possible views taken by AO considering the submissions of the assessee, can’t be said to be erroneous. In support of his contentions assessee relied upon the pronouncement of Hon’ble High Court of Kolkata on similar set of facts in the case of PCIT, Kolkata-1 v/s Infinity Infotech Parks Ltd. we found AO has properly examined the issue based on the information he received from ADIT (I&CI), Kolkata with a proper application of mind. He came to the conclusion based on the set of facts and law applicable.

In light of the above, we don’t see any perversity in the order passed by the AO u/s 143(3) r.w.s. 147 of the Act. Ld. PCIT is failed to establish the said order erroneous and prejudicial to the interest of the revenue.

In view of the above facts and law we are not inclined to support the order of the Ld. PCIT passed u/s 263 of the Act. Hence the same is set aside as the same is bad in law in terms of merit of the case and on ground of assuming jurisdiction.

In the light of above the appeal of the assessee is allowed and order of Ld. PCIT is set aside. Order pronounced in the open court on 20th day of October, 2022 Sd/- Sd/- ABY T. VARKEY GAGAN GOYAL (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) Mumbai, Dated: 20/10/2022 AR, Stenographer Copy of the Order Forwarded to: 1. The Appellant 2. The Respondent, PCIT, Thane-1 3. CIT, DR, ITAT, Mumbai 4. Guard File // True Copy// By Order,