DCIT, CC-2(1), BENGALURU, BENGALURU vs. CHAITANYA PROPERTIES PVT LTD, BENGALURU

Finally, the assessment order under section 143(3) read with section 153C was completed through an order dated 30-03-2015, wherein the Assessing Officer (AO) made the following additions to the total income of the assessee: 1. Business income. Rs. 325,32,46,980/- 2. STCG Rs. 84,92,10,510/- 3. LCTG Rs. 71,90,45,278/- 4. Disallowances u/s 14A Rs. 7,91,031/- 6. The aggrieved assessee filed an appeal before the learned CIT(A) who vide order dated 29-12-2016, allowed the appeal in favor of the assessee.

On the merits of the case, the Bench, while addressing the issue of business income and capital gains (whether Short-Term Capital Gains (STCG) or Long-Term Capital Gains (LTCG)) arising from the Joint Development Agreement (JDA), held that the income from the JDA would be liable to tax only from A.Y. 2012-13 onwards, as the sale deeds for units developed under the JDA commenced only in A.Y. 2012-13. Consequently, any addition on account of the JDA in the year under consideration, i.e., A.Y. 2011-12, would amount to double taxation.

Similarly, the Bench remanded the issue of the addition made under section 14A of the Act to the file of the learned CIT(A) for reconsideration.

The learned CIT(A), vide order dated 30-03-2024, once again decided the issue of capital gains and business income from the JDA in favor of the assessee, following the Tribunal's decision in the assessee's own case for A.Y. 2009-10.

Being aggrieved by the order of the learned CIT(A) the Revenue is in appeal before us.

On the contrary, the learned AR before us contends that the Tribunal has already decided the issue in its earlier order, particularly in & 618/Bang/2017, dated 23-05-2022, wherein it was held that the capital gain on conversion of a capital asset into stock-in-trade is taxable only in the year in which such stock-in-trade is actually sold or otherwise transferred. The Tribunal had followed its own decision in & 125/Bang/2013, dated 23-07-2015, which was further upheld by the Hon'ble High Court in ITA No. 570 of 2015, dated 10-07-2018. Therefore, the AR submits that the appeal of the Revenue is not maintainable as the issue has already attained finality through these judicial precedents. Accordingly, it is prayed that the appeal of the Revenue be dismissed.

We have heard the rival contentions of both the parties and perused the materials on record. At the outset, we note that the issue of capital gains arising from the transfer of capital assets into stock-in-trade for the JDA, as well as business income, has already attained finality through the Tribunal's order in the first round of litigation in dated 23-05-2022. The findings of the Hon’ble Bench in the first round of litigation are extracted as follows: On merits 18. Further, the ld. DR submitted that in view of ground No.9, he may be permitted to argue that the issue on merits may be remitted to the CIT(Appeals) to decide each issue independently, after going through the earlier order of the Tribunal in & 125/Bang/2013 dated 27.3.2015. As the CIT(Appeals) has failed to adjudicate each ground independently on merits by identifying similarity of facts on the additions in the present year under consideration vis-à-vis the preceding assessment year relied on by him in his order.

He submitted that the AO has in the assessments order concluded that the Developer has completed development and has handed over the Owners constructed Area to the Respondent and has received the Developer’s share of land from the Respondent in lieu thereof. The AO having come to the said conclusion proceeded to assess the income of the Respondent on the basis that the Respondent had transferred land to the Developer & had received consideration in the form of Built up area during the previous year relevant to the assessment year 2010-11 and assessed the Income from Business at Rs.74,76,30,690/-, Income from Long Term Capital Gains at Rs.9,92,46,023/-, Income from Short Term Capital Gains at Rs.11,72,12,043/- & Disallowance u/s 14 A Rs.6,33,414/-.

Likewise, for the assessment year 2011-12 he assessed the Income from Business at Rs.325,32,46,980/-, Income from Long Term Capital Gains at Rs.71,90,45,278/-, Income from Short Term Capital Gains at Rs.84,92,10,510/- & Disallowance u/s 14A Rs.7,91,031/-.

In the assessment order for the A.Y. 2010-11, the AO has concluded that the sum of Rs.100 crores received by way of Non refundable deposit is nothing but consideration for agreeing to take a lesser share in the built up area and that the same is income in the hands of the Respondent for the A.Y. 2010-11 as the sum of Rs.100 crores is received during the previous year relevant to the said A.Y. He therefore proceeded to assess the Income from Business at Rs.75,83,01,870/- & income from Long Term Capital Gains at Rs.9,92,46,023 & income from Short Term Capital Gains at Rs.11,72,12,043/-.

The assessee has during the course of the assessment proceedings submitted that the supplemental agreement dated 15/5/2009 no doubt confers PEPL to receive a larger portion of the commercial area to be built up but however PEPL will get the absolute rights to the same only after PEPL hands over Our Share of Built up area only after the Construction of which is complete in all respects and duly certified to be so by the Architect of the Project.

The sum of Rs.100 crores is not consideration but represents Non Refundable Deposit & will remain as Non refundable Deposit till such time the Developer completes his part of the contract. In the event the Developer is not able to perform & is forced to abandon the contract for any reason what so ever the Non-Refundable Deposit would then remain with the assessee & would partake the nature of a Capital Receipt. The same will fructify into .

As a natural corollary since no built-up area is received by us during A.Y. 2010-11 & 2011-12, no portion of the Non-Refundable Deposit of Rs.100 crores would fructify into income for the said assessment year.

The fact that the land which is subjected to Joint Development is Stock In Trade of the assessee is a very important fact to take note off in order to decide the exact point in time as to when the ownership in these lands held as stock in trade gets actually transferred from the Respondent. The application of section 45 is limited to sub section (2) of section 45 in as much as the impugned lands are held as Stock in Trade. The provisions of section 53A of the Transfer of Property Act apply to an asset held as a Capital asset /investment & not to Stock In Trade.

It is submitted that from a reading & understanding of the JDA what has to be ascertained is the date on which PEPL starting exercising the POA to convey ownership of the undivided interest in the land held as Stock in Trade & treat only those portions of undivided interest in land which are actually registered in favour of PEPL or its nominees or any third person for that matter & bring to tax the Capital Gains arising out of such conveyance in such years in which it is transferred. The sale of undivided interest in land has two components of income. The first is Income from Capital Gains which is to be worked out as per the provisions of sub section (2) of section 45 & the other component being Income from Business, which is to be computed on the basis of the value attributed to the building in the office of the sub – registrar for purposes of stamp duty at the time of registration of the sale deed of an apartment. The Sale deed for an apartment will consist of two components namely Value of the undivided interest in land & Value of building. The purchaser of the apartment will pay a composite price which will be split up into the above two components for purpose of registration. If one were to study the Sale deeds executed by PEPL transferring ownership of the apartment to the purchasers, one can find out the value per sft of land and the value per sft of building. Both these components are to be taxed in the assessment year relevant to the previous year in which the undivided interest in land is actually conveyed and to the limited extent of the land actually conveyed by the process of registration.

It is submitted that the property being held by way of stock in trade, the sale of the same will have to be recognised only when the same is actually conveyed by a registered sale deed. This principle which is applicable to stock in trade has been upheld by the Jurisdictional Bangalore Bench of the ITAT in the assessee’s own case for the A.Y. 2009-10 wherein the Tribunal, confirming the decision of the CIT(A) has held categorically in its order that “When an immoveable property is held as Stock in Trade, the same is to be considered as .

Further on the issue of Non Refundable Deposit, the ITAT, again confirming the decision of the CIT(A), held that “The Non Refundable Deposit would partake the character of sale consideration only upon the ownership of the undivided interest in land being transferred by a sale deed and not before that and then only to the extent of the amount proportionately applicable to the extent of land so transferred.”

Thus, from the above brief submissions made above as regard to the merits of the matter, it is submitted that the additions made in the order of assessment is not warranted and further the binding decision of the Jurisdictional ITAT, Bangalore Bench in assessee’s own case for the AY 2009- 10 in order dated 27/03/2015 supports the contention of the assessee, as no income accrues to the assessee either by way of Income from Business and nor by way of Capital Gains whether Long or Short Term Capital gains which has held that when an immovable property is held as stock- in-trade, the same is to be considered as sold only when the sale is conveyed by means of a registered sale deed and not before that.

Thus, the additions made by the AO have been rightly deleted by the CIT A for the A.Y. 2010-11 & 2011-12 & the order of the CIT(A) needs to be confirmed in the interest of Justice.

The ld. AR also submitted that assessee has started declaring income from the said JDA as & when the Sale deeds are actually registered on & from A.Y. 2012-13. The Respondent has so far declared a Total Taxable income of Rs. 435,43,56,426/- which includes a sum of Rs. 310,96,66,066/-as Income from Business & Rs.124,46,90,420/- as Income from Long Term Capital Gain which are income arising out of the JDA on upto A.Y. 2020-21. The assessee has paid the due taxes & assessments are completed for most of the years except A.Y. 2020-21, which is in progress.

The details of the Returns filed for the A.Y’s 2012-13 to 2020-21 & a consolidated chart showing income declared under the heads Business Income & Long Term Capital Gains, year wise, arising out of the Project is also filed separately before this Tribunal. This proves that there is no intention on the part of the assessee not to disclose income from the JDA but that the assessee is declaring the same in accordance with law. Any addition made in A.Y. 2010- 11 & 2011-12 would amount to double addition & double collection of taxes on the very same income. Addition of Rs. 6,33,414/-/- & 7,91,031/- made by way of disallowance u/s 14A of the Act: 34. It is submitted that there is no incriminating seized material which has bought to the notice of the AO that income has escaped assessment on this count. The addition made by the AO is purely based on information available in the assessment records of the assessee and not based on any incriminating seized material which leads to an inference of undisclosed income. The Addition thus fails on this ground. The fact that these assessments do not abate is an important aspect & hence an addition u/s 14A cannot be made in the absence of incriminating material.

There is no proper satisfaction arrived at by the AO to come a conclusion that disallowance of expenses is indeed warranted. Several Appellate authorities have held that application of the provisions of section 14A cannot .

Further it is now a settled law that any disallowance of expenditure u/s section 14A by applying rule 8D (2)(ii) & (iii) cannot exceed the income earned from the said investment. In the present case the income earned is NIL and hence no expenditure can be disallowed. The assessee relies upon the following decisions in support of the above said proposition:- CIT vs Cortech Energy Pvt Ltd 372 ITR 97, (Guj); CIT vs Lakhani Marketing 272 CTR 265, (P&H) 38. Wherefore in the light of the above facts and circumstances of the case it is prayed that the appeals of the revenue are to be dismissed.

We have heard both the parties and perused the material on record. We find that the CIT(Appeals) has passed a cryptic order on merits on the additions made by the AO and his findings are as follows: ************ 40. We have heard both the parties and perused the material on record. In order to render substantial justice, we deem it appropriate to remand the issues on merits to the CIT(Appeals) to be decided in accordance with law. The CIT(Appeals) is directed to pass a detailed order on merits independently based on evidence filed qua each addition for the assessment years under consideration, after providing opportunity of being heard to the assessee as well as the AO.