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Income Tax Appellate Tribunal, ‘C’ BENCH : BANGALORE
Before: SHRI. CHANDRA POOJARI & SMT. BEENA PILLAI
Page 2 of 25 & 1360/Bang/2017 ORDER PER BEENA PILLAI, JUDICIAL MEMBER Present cross appeals has been filed by assessee as well as revenue against order dated 27/03/2017 passed by Ld.CIT(A)-2, Panaji, for assessment year 2010-11 on following grounds of appeal: “ITA No. 1667/B/2017
1. The learned CIT(A) erred in Passing the Order in the manner he did.
2. The learned CIT(A) erred in disallowing the administration expenditure claimed by the Appellant to the extent of Rs. 15,87,571/- on exemption that, it is sufficient for running a company of the Appellant.
3. The learned CIT(A) erred in confirming the disallowance made by the Assessing officer to the extent of Rs.46,60,463/- by stating that, the said expenditure is relating to transfer of Capital Assets to Plama Developers Ltd.
4. The learned CIT(A) erred in confirming the capital gains on refundable deposit by treating it as non-refundable deposit and confirming the same as full value of consideration for the purpose of capital gains.
5. The learned CIT (Appeals)-2,Panaji has erred in law in coming to the conclusion that, in view of the judicial decisions of the Hon'ble Jurisdictional High Court in the case of CIT Vs. Dr. T.K. Dayalu (292 Taxman 531) as well as following decisions of other Hon'ble Courts, date relevant for attracting capital gains having regard to the definition uls.2(47)(v) of the Income tax Act, 1961 r.w.s.53 of Transfer of Property Act is the date, on which possession is handed over to the developers. The said decisions are not at applicable to the Appellant's case. i) Chaturbhuj Dwarakadas Kapadia Vs. CIT (260 ITR 491) (Mumbai) ii) Authority of Advance Ruling in Jasbir Singh Sarkaria in RC Akkineni Rajeshwara Rao (ITA 5341I-IYD12014), dated 13.4.2012. 6 The Appellant craves leave to add, amend or alter any of the forgoing grounds. IV. For these and any other grounds that may be urged before the Hon'ble ITAT, it is prayed that the Hon'ble ITAT may allow the appeal with cost. ITA No. 1360/B/2017
1. The order of the learned CIT(A) is opposed to Law and facts of the case.
2. The learned, QIT(A) ought to have upheld the decision of the Assessing Officer of making additions on account of disallowance of Page 3 of 25 & 1360/Bang/2017 business loss in the absence of any business activity carried on by the assessee.
The learned CIT(A) is erred in allowing the depreciation partially when he has disallowed the depreciation on car fully as the assessee has not carried out any business activity.
The learned CIT(A) has erred in allowing the claim of the assessee while holding the consideration at 19.30 cores for determining the long term capital gains without appreciating that the Assessing officer has made the additions on the basis of documents found and seized during the course of search.
The learned CIT(A) has erred in allowing the claim of the assessee merely based on the self serving statements made by the assessee wherein it has claimed interest paid by the developer on behalf the assessee to the original advancer in the absence of a such clause in the JDA.
The learned CIT(A) is erred in holding the that the documents found during the course of search contradicts, whereas it was supporting the findings of the assessing officer as the cost for the assessee works out to 22.30 Crores as it has received 19.30 Crores from the developer of the land and has already received the advance of 3 Crores given by M/s Somayaji Holdings for purchase of the same piece of land before the assessee entered into JDA with another.
7. The learned CIT(A) has erred in not holding interest component of 2.75 as additional consideration, apart from 22.30 Crores, paid by the developer to original advancer M/s Somayaji against the advance 3 Crores given to the assessee 8. For these and such other grounds it is urged that the order of the learned CIT(A), on the above points may be set aside and the order of the Assessing Officer be restored.
The appellant craves leave to add, alter or amend all or any of the grounds of appeal
before or at the time of the hearing of the appeal.
2. At the outset the Ld.AR submitted that there is a delay of 79 days in filing appeal by assessee. The Ld.AR submitted that impugned order was received by assessee on 31/03/2017 however the appeal could be filed only by 14/08/2017. 2.1 It has been submitted that the director of the company was not keeping well and was admitted at the hospital for hernia surgery and thereafter was on bed rest. The director of the assessee has also filed an affidavit under oath dated 17/02/2018 in support of the above. The Ld.AR thus prayed for condonation of the delay in filing the present appeal.
Page 4 of 25 & 1360/Bang/2017 3. On the contrary the Ld.Sr.DR vehemently objected for the delay to be condoned. 3.1 We have perused the submissions advanced by both sides in light of records placed before us. 3.2 We note that there was a genuine reason because of which assessee could not file the present appeal within the period of limitation. In the interest of Justice and to render justice to further substantial cause, we condoned the delay of 79 days in filing the present appeal before this Tribunal. Accordingly the application for condonation of delay dated 20/02/2018. Brief facts of the case are as under: 4. The ssessee is a private limited company and was engaged in the activity of running club with swimming pool, billiards etc and real estate business including construction activities. Ld.AO has recorded that during the year 2006 the club activities were closed down and the land was offered to Somayaji Holdings Pvt.Ltd for a joint development by way of an agreement dated 05/05/2006. The Ld. AO observed that though the JDA was signed no development took place, and later the agreement with Somayaji Holdings Pvt.Ltd was cancelled and M/s Plama Developers took over the project by fresh JDA dated 10/07/2008. 4.1 The Ld. AO observed that, as per the JDA dated 10/07/2008, 40% of the built up area was to be given to the assessee, apart from non-refundable deposit. Subsequently assessee entered into joint development agreement with Sh. and Anjanappa & Ors., by which, their property was also included in the joint development agreement. Ld.AO observed that the total
Page 5 of 25 & 1360/Bang/2017 built up area corresponding to area of 3,66,036 ft.² was proposed to be constructed by the builder M/s Plama Developer’s private Ltd. 4.2 The builder further brought another landowner Sh. Munikrishna & Ors., to the joint venture, and obtained permit for excess built up area corresponding to their land. The Ld.AO noted that, this did not affect the original agreement with assessee that was that, eligible to receive 40% of the built up area corresponding to the areas are surrendered by assessee. Further by way of a supplementary agreement to the original agreement, it was agreed by the assessee and the developer that, over and above the constructed area falling to the share of owners, Rs.22.30 crores would be paid as non-refundable consideration to assessee. The payment schedule, as observed by the Ld.AO is as under: a) Rs.4.8 crores - Rs.2.5 crore prayed to Somayaji Holdings Pvt.Ltd for cancellation of JDA dated 05/05/2006 and Rs.2.3crores to the owners b) Rs.1 crore - on execution of the supplementary agreement by DD bearing No.028756 dated 08/07/2008 drawn on axis bank Ltd. (the assessee has accepted and acknowledged the same) c) Rs. 5 crores –o n the plans being sanctioned by the BDA and for the amount the developer has deposited on the date of supplementary agreement with Mr.Anup S. Shah, Advocate, to Royal Park, 34, Park road, Bangalore White cheque No.237437 drawn on axis bank Ltd., Mangalore branch and dated with the authority to date the same after
Page 6 of 25 & 1360/Bang/2017 planners sanctioned in the terms of JDA and to be delivered to the owner after that date without reference to the developer. d) Rs.1 crore - at the time of me Pooja which have not been later than 30 days from the date of plan sanctioned. e) Rs.10.5 crores, (in monthly instalments of rupees one crore each and last being Rs. 15 lakhs from the date of Bhumi Puja) 4.3. The Ld.AO also noted that though the JV agreement was signed in 2006 and subsequently in 2008, the possession of the property was taken over by the developer after approval of the plan for building that is December 2009. According to Ld.AO, the liability of capital gains arising out of surrender of the land by assessee, to be taxed in the financial year 2009-10 relevant to assessment year under consideration. 4.4 The Ld.AO noted that, assessee as well as the developer M/s.Plama Developers Ltd., had not filed proper return of income disclosing true and correct income and source of investment in the project. Hence a survey under section 133 of the Act, was conducted in the office premises of the assessee on 11/01/2013, and search under section 132 of the Act, was conducted at the premises of M/s Plama Developers Ltd., on 09/01/2013. Certain documents/agreements were found at the searched premises, in which, one of the parties to the agreement was assessee. Subsequently, notice under section 153C was issued to assessee on 24/03/2014. Assessee filed return of income on 28/09/2014 in response to notice under section 153C of the Act declaring total income of Rs.55, 04, 509/-.
Page 7 of 25 & 1360/Bang/2017 4.5 The notice under section 143(2) was issued and served upon assessee and the assessment was completed under section 153C read with section 143 (3) on 30/03/2015, determining total income at Rs.13,39,17,525/-. By making following additions: addition of Rs.7,90,174/- being income from house property addition of Rs.49,292/- as income from other sources disallowance of all expenses and depreciation claimed amounting to Rs.13,39,70,525/- capital gains computed by considering non-refundable deposit of Rs.19.30 crores and the cost of construction was considered at Rs.1,880/-per square feet contemplated to be disclosed by the developer with the area allotted that is 48503 ft.².
5. Aggrieved by the additions made by the Ld.AO, assessee preferred appeal before the Ld.CIT(A). The Ld.CIT(A) the legal issue raised by assessee was dismissed for the reason that assessee did not wish to adjudicate the ground along with all related sub grounds. 5.1 On merits, the Ld.CIT(A) noted that assessing officer disallowed business loss claimed by assessee in the return of income filed under section 153C of the Act amounting to Rs.55,04,509/-. For the reason that, assessee did not have a running business of functioning of club, and therefore no business income is derived. The Ld.AO noted that, no business activity in the real estate or construction was carried out during the year and hence the expenditure was also brought to tax. 5.2 The Ld.CIT(A) observed that, there was a temporary recession in the real estate sector, which resulted in stoppage of Page 8 of 25 & 1360/Bang/2017 revenue from the business activities. And that assessee had to incur administrative and financial expenditures to keep the least the minimum staff and to run the business with an intention to revive the existing business or to explore some of business. The Ld.CIT(A) thus directed the Ld.AO to allow a reasonable administrative and financial expenditure incurred by assessee. 5.3 The Ld.CIT (A) decided the issues as under: “5.3. Now, I come to the quantum of allowance of expenditure. As seen from the P & L Account, the administrative expenses claimed are Rs.30,87,571/-, which has increased from Rs.27,37,692/- in the immediately preceding assessment year. The AR of the appellant has not explained the need of incurring additional administrative expenses during the previous year relevant to the assessment year in appeal. In deciding the appeal of A.Y. 2009-10, I have directed the AO to allow administrative expenditure of Rs.12,00,000I-. Now, considering the inflation aspect and also considering the fact that appellant has executed the JDA during the previous year relevant to the assessment year in appeal, it would be reasonable to allow an expenditure of Rs. 15,00,000/-, which in my opinion, is sufficient for running a company of the appellants size. Thus, the disallowance of administrative expenditure to the tune of Rs. 15,87,5711- is confirmed. 7.13. Thus, in case of deemed transfer of land by virtue of JDA, the logical consideration for such land transfer would be the actual consideration received or guidance value as determined by the sub- registrar or stamp duty authorities as on the date of transfer whichever is higher. Any gain on sale of such built up area to be received in future is subjected to tax in the respective years in which said area is transferred by the appellant. In the instant case, the actual sale consideration on the basis of information analyzed has been found to be Rs. 19.30 crore. The said consideration is more than the guidance value of the land transferred by the appellant for Joint Development, which is Rs.2,97,00,000I-. The sale consideration offered by the appellant is Rs.1,7817,8031-. Higher of the three needs to be accepted as sale consideration for transfer of rights in the property. Accordingly, the addition made by the AO to the tune of Rs.19.30 crore is sustained and the appellant gets relief of Rs.3.00 crore (out of Rs.22.3 crore taxed by the AO) and Rs.9,11,85,6401- brought to tax by the AO towards the value of the built up area. The deletion of addition relating to value of built up area is supported by the decisions of Honble ITAT referred to by the AR of the appellant which are eproduced below: ACIT Vs. Smt. Sarojini M.Kushre, Mangalore (ITA No.98919ang/2014), dated 27.4.2016.
Page 9 of 25 & 1360/Bang/2017 b) ACIT Vs. M/s.ShankerVittal Motor Company Ltd. (hA No.35/Bang/2015), dated 18.3.2016. 6.14. Thus, the sale consideration received by the appellant for transfer of rights in the land by means of JDA is held to be Rs.19,30,00,000/-. Accordingly, ground no.5 is partly allowed and Ground No. 6 is allowed.”
6. Aggrieved by the order of Ld.CIT(A) assessee as well as revenue are in appeal before us now. 6.1 In the appeal filed by assessee, the challenge is against disallowance of administrative expenditure and direct expenditure, amounting to Rs.15,87,571/- and disallowance of Rs.46,60,463/-. In the appeal filed by revenue, the challenge is against the capital gains computed at Rs.3,26,37,270/- by the Ld.AO, by considering non refundable deposit of Rs.19.30 crores.
We have perused the submissions advanced by both sides in the light of records placed before us.
We shall 1st take up the appeal filed by assessee: 8.1 Ground No. 1 is general in nature and therefore do not require any adjudication.
9. Ground No.2 is in respect of disallowance of administrative expenses to the extent of Rs.15,87,571/-. 9.1 We note that Ld.CIT(A) restricted the disallowance to the tune of Rs.15,87,571/-. The total administrative expenses claimed by assessee for year under consideration was Rs.30,87,571/-. The Ld.CIT(A) based on disallowance made for assessment year 2009-10 being the immediately preceding assessment year and considering the fact that assessee executed JDA during the previous year relevant to assessment year under consideration, allowed expenditure of Rs.15 lakh as sufficient for running the company.
Page 10 of 25 & 1360/Bang/2017 9.2 We note that in all the preceding assessment years a proportionate amount of expenditure was disallowed, which has not been contested by assessee before this Tribunal. Assessee has restrained from filing any appeal before this Tribunal in any of the preceding assessment years. Further assessee has placed in the paper book, the orders passed by 1st appellate for preceding assessment years. There is a categorical observation in all the preceding assessment years by the Ld.CIT(A) therein that, assessee had an increase in work in progress. 9.3 On perusal of the balance sheet for year under consideration placed in the paper book, we note that, no work in progress is accounted for. Under such circumstances, we do not find any reason to allow entire administrative expenses claimed by assessee. Whatever has been allowed by the Ld.CIT(A) is justifiable. Accordingly this ground raised by assessee stands dismissed.
10. Ground No.3 is raised against disallowance of Rs.46,60,463/-. From the profit and loss account filed by assessee it was found by the authorities below that, assessee claimed direct expenses of Rs.46,60,463/-. Assessee during the proceedings before authorities below filed details of the direct expenses which were as under: Transfer of land to developers : Rs.25,49,842/- Loss on demolition of clubhouse: Rs.21,10,621/- Total direct expenses : Rs.46,60,463/- Page 11 of 25 ITA No.1667 & 1360/Bang/2017 10.1 On verification of details by authorities below, these payments were relating to transfer of capital asset to M/s.Palma Developers Ltd. 10.2 We have perused the memorandum of Association placed in the paper book. Clause 3 of the memorandum allows assessee to undertake construction activities. Assessee used to have clubhouse business which could not run well in the past. Assessee had to shut down the business as there was a lull period. It was during this period that, the assessee entered into real estate construction. This led to the JDA with M/s.Palma Developers Ltd. The expenses incurred are towards development of the land as per JDA. Under such circumstances, in our view these expenses pertained to the activities carried on by assessee during the relevant period. 10.3 We therefore do not find any reason to disallow the same. Accordingly these expenses are to be allowed as business expenditure. This ground raised by assessee therefore stands allowed.
11. Ground 4-7: In the revenue’s appeal, issue alleged relates to computation of capital gains on the constructed area falling into assessee’s share as per JDA. 11.1 Ground 4-5: Assessee alleges that, Ld.CIT(A) treated the refundable deposit as non-refundable, for the purposes of capital gains. 11.2 As the issues in assessee’s grounds and revenue ground mentioned hereinabove are interlinked with each other, they are being considered and disposed off as under:
Page 12 of 25 & 1360/Bang/2017 11.3 Assessee offered capital gains tax for assessment year 2013- 14 taxing the sale consideration of Rs.19.30 crores. However, the Ld.AO rejected capital gains offered in assessment year 2013-14, by holding that the said income is to be taxed in the year under consideration being assessment year 2010-11. Ld.AO held that capital gains is to be computed by taking Rs.22.30 crores as sale consideration, being the non-refundable deposit received by assessee from M/s.Plama Developers Ltd., and the cost of construction at Rs.1,880/-, contemplated to be disclosed by M/s.Plama Developers Ltd., with the area allotted to assessee being 48,503 sq.ft. 11.4 The Ld.CIT(A) upheld the action of the Ld.AO in taxing the capital gain in the year under consideration by observing that capital gain arose on the date of handing over the possession of properties to the developer and assessee has handed over the possession of the land to M/s.Plama Developers Ltd., during financial year 2009-10 and the capital arising from the transfer of the said land is to be taxed in the assessment year 2010-11. 11.5 The Ld.CIT(A) however observed that the consideration received by assessee for transfer of the land was Rs.19.30 crore as against Rs.22.30 crores considered by the Ld.AO. 11.6 Before us, the Ld.AR argued that provisions of section 2(47)(v) of the Act is not applicable as assessee has only given license to the developer to enter into the land to start construction. There was no transfer or legal ownership of the property to the developer. 11.7 The Ld.AR vehemently submitted that giving license the developer to enter into the land cannot be equated with giving Page 13 of 25 & 1360/Bang/2017 absolute legal title of the property to the developer. According to the Ld.AR capital gain arises only on exchange of built up area by the developer to the landlord. Secondly, it was submitted that constructed area of assessee’s share in the property is not in existence as on the date of JDA or as on the date of general power of attorney and it is subject to many factors like sanction of municipal plan, construction of building, getting occupants the certificates etc. According to Ld.AR, it is not chargeable during the year under consideration as there is no accrual of capital gain as per section 48 in the hands of assessee. 11.8 The Ld.AR submitted that merely giving licence to the developer could not be said to be in “possession”, within the meaning of section 53A of Transfer of Property act, 1882, and the developer has to get the control over the land and not physical occupation of land. 11.9 On the contrary, the Ld.DR submitted that provisions of section 2(47)(v) of the Act is an inclusive definition and that assessee entered into JDA and gave possession of the property to the developer. He also emphasise that, the entire payment towards the land was completed by the developer in favour of assessee during the relevant year under consideration as per the JDA entered into between them. He submitted that the clauses under the JDA and subsequent mentions the security deposits to be non-refundable consideration towards the possession of land, which is further fortified by the supplementary JDA entered into by assessee during the year 2013. Going through various clauses of the joint development agreement and supplementary development agreement entered into by assessee with the Page 14 of 25 & 1360/Bang/2017 developer on various dates placed in the paper book the Ld.DR CIT submitted that, that the amount received by assessee was towards the handing over of possession of land to the developers. The Ld.CIT.DR relied on the decision of Hon’ble Karnataka High Court in case of CIT vs. Dr.T.K.Dayalu, reported in 202 Taxmann 571. He also placed reliance on the decision of Hon’ble Bombay High Court in case of Chaturbhuj Dwarkadas Kapadia vs CIT reported in (2003) 260 ITR 491. 11.10 The 2 issue that arises from these facts are that; 1. The Ld.AO disputes the year in which transfer of the land took place and the year in which the capital gains is to be declared; and 2. The consideration received/receivable by assessee for such transfer. Issue 1: On perusal of the order passed by the Ld.CIT(A), there is categorical observation that, in the first appellate order passed in case of M/s.Plama Developers Ltd., the sale consideration shown was Rs.22.30 crores. The Ld.CIT(A) observed that M/s.Plama Developers Ltd., during the financial year relevant to assessment year 2010-11, paid sum of Rs.22.05 crores towards the purchase of land in the following manner: paid to the assessee before us- Rs.16.30 crores paid to SHPL (on behalf of assessee)-Rs.3 crore paid to SHPL as interest- Rs.2.75 crores 11.11 It was on the above factual findings in case of M/s.Plama Developers Ltd that Ld.CIT(A) determined the consideration for transfer of land by assessee to be at Rs.19.30 crores (16.30+3), during the assessment year 2010-11.
Page 15 of 25 & 1360/Bang/2017 Admittedly assessee has received Rs.19.30 crores during the relevant year under consideration. There is nothing on record to establish that assessee received anything over and above Rs.19.30 crores. We therefore do not find any infirmity in the observation of the Ld.CIT(A) in treating the money received by assessee to be Rs. 19.30 crore from the developer. 11.12 We therefore do not find any merit in the grounds 4-7 raised by revenue. Issue 2: Now coming to the issue of the year in which the transfer of capital asset took place one has to analyse the JDA along with the power of attorney executed by assessee with M/s.Plama Developers Ltd. 11.13 Assessee in the paper book has placed copies of following documents executed: 1. Memorandum of understanding dated 09/07/2008 between the owners of the land being Mr.N.Anjanappa, Mr.H.A. Ravikumar, Mr. H. A. Narayanan Gowda, Mr. H. A. Laxman Gowda, Mr.Hombe Gowda; And the assessee, being a company and developer, bearing survey No 6/5. As per the MOU, assessee has to pay a sum of Rs. 55 Lacs as non- refundable consideration to the owners against which the owner shall convey 60% undivided share which is corresponding to the developers constructed area in favour of developer or anyone nominated by the developer. The relevant clauses are at page 135-136 of paper book at page 138-139 receipt of the said amount by the owners are also available.
Page 16 of 25 & 1360/Bang/2017 2. A joint development was then executed on 10/07/2008 between assessee as owner No. 1 and Mr.N.Anjanappa, Mr.H.A. Ravikumar, Mr. H. A. Narayanan Gowda, Mr. H. A. Laxman Gowda, Mr.Hombe Gowda as owners No. 2; And M/s.Palma developers Ltd. as the developer bearing BBMB Khata No. 286/279/6/5 (carved out of land bearing survey No. 6/5). The said agreement is placed at page 140 of paper book. The consideration clause at page 148 reads as under: 1) Consideration: 1.1) In consideration of the developer agreeing to construct and delivering to the owners the owners constructed area as set out in Annexure “8” hereto along with the right to common area, in the building to be constructed on the scheduled property, the owners agree to transfer 60% of the undivided share to the developer or anyone nominated by the developer in the development with the right to enter into nomination agreement for sale of such undivided share and also the construction agreement for corresponding constructed ATI in the building/S to be constructed on the scheduled property at the developer’s own risk and the owner’s grant licence and permission to the developer to enter upon and construct the commercial and residential building. The developer shall construct a commercial and residential building, in the scheduled property at his own cost and expenses as per the detailed specifications annexed with to this agreement which shall form part of this agreement; 11.14 Subsequently clause 1.3 also reads as under: 1.2) The owners have licensed the developer to enter upon the schedule property for the purpose of development in terms of this agreement, and the developer shall comply with all its obligations under this agreement; provided however that, Page 17 of 25 & 1360/Bang/2017 nothing herein contained shall be construed as delivery of possession in part performance of any agreement of sale under section 53A of the Transfer of Property Act, 1886 or section 2(47)(v) of the Income tax Act, 1961; 11.15 We note that assessee, subsequently entered into power of attorney dated 10/07/2008 for the developer to carry out the construction in the scheduled property. A specific power of attorney is also executed on 10/07/2008 granting power to the developer to transfer and convey by way of sale, gift, lease, mortgage, etc., the 60% of undivided share title right and interest and ownership in the scheduled property and to receive the consideration in respect of the said 60% being the developers share. More specifically placed at page 169-185 of paper book. 11.16 On 30/03/2011, assessee entered into supplemental joint development agreement with the developer for development of additional land and the additional FAR. More specifically placed at page 186-2 to 5 of paper book. 11.17 On 09/07/2008 assessee has entered into supplemental agreement with the developer wherein the consideration of Rs. 22.30 crores paid by the developer was considered to be a non-refundable consideration. The said agreement is placed at page 26-232 of paper book. 11.18 We also note that, vide supplemental joint development agreement entered into between the assessee and M/s.Plama Developers Ltd., dated 01/03/2013, Clause 2 at page 241 reads as under: 2. Security deposit: The total refundable advance paid to 1st party in different dates shall be treated as non-refundable consideration which was earlier treated as Page 18 of 25 & 1360/Bang/2017 refundable deposits on account of the foregone ADR by the 1st party. The total consideration amount shall be Rs.19,30,00,000/-(Rupees Nineteen crores and Thirty lakhs only) in close of the amounts paid by Somayaji Holdings. These agreed amounts are inclusive of the amounts paid to N.Anjanappa and his sons by M/s TV Aleyas Pvt.Ltd., on account of Plama Developers.
From the above clause it is amply clear that the said amount was consideration paid by M/s Plama Developers to assessee towards the transfer of land. This is further supported by the supplemental agreement entered by assessee with the developer in the year 2008 wherein clause III of the agreement placed at page 228 categorically mentions the said amount to be a non-refundable consideration. 12.1 The above facts from the joint development agreement as well as the supplementary joint development agreement indicates that the owners being the assessee as along with individual owners had given the control of the land to the developer. By virtue of the terms and conditions mentioned in the agreements referred to herein above, “transfer” as contemplated under section 2(47)(v) of the Act had taken place during the relevant year under consideration. The land mentioned in the JDA was transferred as was the provisions of the said section and part performance was made by the developer by paying the consideration towards the transfer of the land. 12.2 In our view considering the above facts and carefully examining the various clauses under the JDA as well as supplementary JDA entered into by assessee with the developer on various dates, it is clear that the non-refundable consideration was given a by the developer to the assessee for acquisition of Page 19 of 25 & 1360/Bang/2017 undivided share in the land apart from the superstructure falling into assessee’s share to be constructed by the developer free of cost. We also refer to the specific power of attorney entered into by assessee with the developer wherein there is an agreement arrived between the parties that the developer would be the ultimate transferee for the sale of structures constructed and falling into the developer’s share without any notice to the assessee. The specific power of attorney categorically mentions that the developer need not inform or put assessee to notice for sale of the undivided area falling into the developers share. 12.3 The Hon'ble Supreme Court in case of CIT vs. Balbir Singh Maini reported in (2017) 398 ITR 531. In case of CIT Vs. Balbir Singh Maini (Supra), Hon'ble Supreme Court also observed as under:- "22.1 "The object of sec.2(47)(vi) of the Act is to bring within tax net a defacto transfer of any immovable property. The expression, 'enabling the enjoyment of takes colour from the earlier expression, 'transferring'. Thus it is clear that any transaction which enables the enjoyment of immovable property must be construed to be 'enjoyment as a purported owner thereof. The idea is to bring within tax net, transaction, where, though title may not be transferred in law, in substance, a transfer of title in fact. Hon'ble Court referred it as 'noscitur a sociis'. Hon'ble Court in catena of cases observed that, for chargeability of income-tax, the income ought to have either arrived or accrued. 12.4 A reading of the JDA coupled with all the supplementary agreement entered into between the party subsequently shows that the owner has transferred the developers share in the land akin to ownership to the developer. Also a real income has arisen Page 20 of 25 & 1360/Bang/2017 in the hands of assessee upon such transfer of developers share which is fortified by the subsequent sup supplementary JDA entered into between the parties in the year 2013. Even otherwise the nomenclature of the amount received by assessee during the year under consideration from the developer is "non-refundable security deposit". Further it is more clear from the supplementary agreement entered into between the parties in the year 2013 that, upon completion of the construction the developer is only handing over the constructed premises to assessee. If one goes by the averments in the JDA and supplementary agreement the intention is very clear that the money received at the time of entering of JDA, automatically leads to the conclusion that it pertained to the transfer of rights and ownership of the developers share in the land. This is further supported by the order passed by coordinate bench of this Tribunal in case of M/s. Plama Developers Ltd. in ITA No. 1362/Bang/2017 and ITA No. 1363/Bang/2017 for AY 2010-11 and 2011-12 by order dated 28.09.2018. The said order is placed at pg 532 of paper book. There is a categorical observation by the Ld.CIT(A) therein that the money paid by Plama Developers to M/s. T.V. Aleyas is towards sale consideration of the land. In our view the above observations by Hon'ble Supreme Court is an exception to the situation in hand, where assessee's facts are squarely covered. 12.5 We are therefore unable to appreciate the arguments advanced by the Ld.AR under such peculiar facts that emanate from records that assessee had only granted right to enter the land for purposes of developing.
Page 21 of 25 & 1360/Bang/2017 12.6 We therefore respectfully following the observation of Hon’ble Supreme Court in the case of CIT vs. Balbir Singh Maini (supra) and CIT vs. D.K. Dayalu reported in 292 Taxman 531 do not find any infirmity in the view taken by Ld.CIT(A). Accordingly ground 4-5 in assessee’s appeal stands dismissed. Assessee has also raised following additional ground: “6A. That the Learned Assessing Officer (“AO") erred in law and on facts in passing the assessment order under section 153C read with section 143(3) as the conditions provided in section 153C regarding seized documents belonging to the appellant was not satisfied in the present case.” On perusal of the CIT(A) order, we note that assessee has not pressed to adjudicate this ground with all its sub-ground. The Ld.CIT(A) had dismissed the legal issues raised by assessee in respect of jurisdiction to make assessment u/s. 153C. We note that ground no. 2.1 raised by assessee before Ld.CIT(A) is same as additional ground raised before us. Accordingly, the additional ground raised by assessee stands dismissed. Revenue’s Appeal:
13. Revenue is also alleged the taxability of constructed area to be received by assessee. 13.1 The Ld. AO noted that assessee has not declared the capital gains of the constructed area that is receivable and therefore brought to tax by applying cost of construction at Rs.1880/- per square feet as contemplated to be disclosed by M/s.Plama Developers Ltd. The Ld.CIT(A) on verification of the submissions and the agreements entered into by assessee with the developer observed as under:
Page 22 of 25 & 1360/Bang/2017 “7.12. The crux of the argument of the appellant is that the AC has estimated the sale consideration purely on guess work. The joint development agreement is a kind of contract agreement wherein the transferor (appellant) would get his share of constructed property after completion of the project. Further, in getting the agreed space at future date involves lot of uncertainty like developer not completing the project, developer not honoring his commitment, unreasonable delay in completing of the project etc. In any such events, the possibility of termination of JDA also cannot be ruled out. Therefore, estimating the sale consideration on the basis of value of the property to be received in future is a non-realistic proposition. The jurisdictional High Court has held that in case of transfer of land by means of JDA, wherein the transfer is deemed by virtue of transfer of possession, in such case what can be taxed is the market value of the property as on the date of transfer. As on the date of JDA, what the appellant has received is only the right to receive 48,503 sq ft. of constructed area which is dependent on happening of certain events in future. 7.13. Thus, in case of deemed transfer of land by virtue of JDA, the logical consideration for such land transfer would be the actual consideration received or guidance value as determined by the sub- registrar or stamp duty authorities as on the date of transfer whichever is higher. Any gain on sale of such built up area to be received in future is subjected to tax in the respective years in which said area is transferred by the appellant. In the instant case, the actual sale consideration on the basis of information analyzed has been found to be Rs.19.30 crore. The said consideration is more than the guidance value of the land transferred by the appellant for Joint Development, which is Rs.2,97,00,000/-. The sale consideration offered by the appellant is Rs.1,7817,8031-. Higher of the three needs to be accepted as sale consideration for transfer of rights in the property. Accordingly, the addition made by the AO to the tune of Rs.19.30 crore is sustained and the appellant gets relief of Rs.3.00 crore (out of Rs.22.3 crore taxed by the AO) and Rs.9,11,85,640/- brought to tax by the AO towards the value of the built up area. The deletion of addition relating to value of built up area is supported by the decisions of Honble ITAT referred to by the AR of the appellant which are eproduced below: ACIT Vs. Smt. Sarojini M.Kushre, Mangalore (ITA No.98919ang/2014), dated 27.4.2016. b) ACIT Vs. M/s.ShankerVittal Motor Company Ltd. (hA No.35/Bang/2015), dated 18.3.2016. 6.14. Thus, the sale consideration received by the appellant for transfer of rights in the land by means of JDA is held to be Rs.19,30,00,000/-. Accordingly, ground no.5 is partly allowed and Ground No. 6 is allowed.” 13.2 The reasoning given by the Ld.CIT(A) cannot be found fault with, as in the present case, there is a transfer of undivided share of land by virtue of JDA and the consideration received by Page 23 of 25 & 1360/Bang/2017 assessee for transfer of such land is over and above the constructed premises falling into assessee’s share. Further, the Ld.CIT(A) observed that consideration received by assessee is more than the guidance value of the land for year under consideration. It is also noted by the Ld.CIT(A) that, any gain on sale of the built up area to be received in future, will be subjected to tax in the respective assessment years in accordance with law. 13.3 On perusal of various supplemental agreement entered into by assessee, there is a mention of additional FAR that may be available, the actual constructed area which will be handed over to the assessee by the developer is not known for the year under consideration. We therefore of the opinion that acted constructed are cannot be determined, as they are non-existent as on the date of entering into JDA and the constructed area that accrues to assessee in the future cannot be predicted. Therefore such constructed area cannot be brought to tax during the year under consideration. For the year under consideration except for the plans having prepared no activity in respect of the development has been completed. There is nothing on record brought by the Ld. AO to show that there was development activity in the land under consideration during the year under consideration, and the cost of construction incurred by the developer was merely an assumption by Ld.AO. 13.4 We therefore find no infirmity in the observations of Ld.CIT(A) and the same is upheld. Accordingly ground No. 5-7 raised by revenue stands dismissed.
Page 24 of 25 & 1360/Bang/2017 Ground No. 3 raised by revenue is challenging depreciation granted by Ld.CIT(A) on other assets at normal rates. The Ld.CIT.DR submitted that there is a categorical finding by the Ld.CIT(A) regarding no business being carried out by assessee in the AY 2009-10 and 2010-11. He submitted that with such observations assessee was not entitled to claim depreciation at all. It is the contention of revenue that business has to be carried on by assessee during the previous year to be eligible for depreciation. Ld.CIT.DR relied on observation of Ld.AO. On the contrary, the Ld.AR relied on order passed by the Ld.CIT(A). We have perused the submissions advanced by both sides in the light of records placed before us. The Ld.AO in the assessment order denied depreciation as no business activity was carried on by assessee during the relevant previous year. He also denied carry forward of depreciation amounting to Rs. 26,60,158/-. In order that the assessee can be entitled to depreciation, assessee must carry on a business. It is not necessary that the business should in fact yield profits. The carrying on of a business may result in loss; but the particular activity carried on by the assessee must be such as must be calculated to yield profits. The test is not the actual making of the profits; the test is whether the nature of the activity is such as possibly to yield profits to the assessee. Where no business has been carried on by the assessee during the previous year, the assessee cannot claim depreciation. Admittedly, assessee did not carry on any business during the relevant financial year as observed by Ld.CIT(A) himself in para 6 Page 25 of 25 ITA No.1667 & 1360/Bang/2017 of the impugned order. We therefore hold that the Ld.CIT(A) was wrong in granting depreciation in part to assessee. Accordingly, this ground raised by revenue stands allowed. In the result, the appeal filed by assessee and revenue stands partly allowed. Order pronounced in open court on 15th December, 2021.