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Facts
A search conducted in the case of Bharath Beedi Works Pvt. Ltd. led to the discovery of a Joint Development Agreement (JDA) where the assessee was a co-owner of a land parcel. The assessee had declared capital gains in AY 2017-18, with possession handed over in October 2016. The AO treated the return filed after the search as invalid and completed assessment under Section 144.
Held
The Tribunal held that the transfer of property, for the purpose of capital gains, occurred when possession was handed over, aligning with the assessee's claim of AY 2017-18. The AO's computation for AY 2015-16 was deemed incorrect.
Key Issues
Whether capital gains on a Joint Development Agreement are to be taxed in the year of JDA execution or possession handover, and whether the AO's assessment under Section 144 treating the return as invalid was justified.
Sections Cited
142(1), 153C, 143(2), 144, 2(47), 153A, 50C, 50D, 143(2), 147, 139
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI. LAXMI PRASAD SAHU & SHRI. KESHAV DUBEY
ORDER Per Bench :
Grounds raised in C.O. No.39/Bang/2024 :
Briefly stated the facts of the case are that assessee is engaged in the manufacturing, trading of printing and stationery and allied products and trading of tendu leaves. In addition, the assessee has rental income from letting of immovable property, income from dividends and interest income. Assessee CO No.39/Bang/2024 Page 5 of 9 filed return of income on 30.09.2015 declaring total loss of Rs.57,88,186/- and claimed refund of Rs.34,23,503/- towards payment of advance tax and TDS. A search was conducted in the case of Bharath Beedi Works Pvt. Ltd., on 26.02.2020. During the course of search, a Joint Development Agreement (JDA) was found. In the said JDA, the assessee is one of the co-owners of land under joint development. In the JDA, there were seven co-owners of the land measuring 4.7732 acres of which the assessee had a share of 25.93%. The assessee had declared capital gain in the Assessment Year 207-18 and possession of land handed over to the developer on 12.10.2016. Pursuant to the search, notice under section 153C of the Act dated 24.06.2021 was served on the assessee. In pursuance to the notice, assessee filed return under section 153C of the Act manually on 29.07.2021 before the AO due to the glitches in the IT portal. Thereafter, again the return of income was filed on 11.08.2021 vide acknowledgement No.268962080110821 declaring therein total loss of Rs.57,88,186/-. The AO noted that the assessee did not file return of income as time allowed for filing return under section 153C of the Act. Therefore, the return was treated as invalid return and proceedings were completed under section 144 of the Act after issuing notice under section 142(1) of the Act. The notice under section 129 of the Act was also issued. The AO noted that the year of incidents of capital gains has to be considered in the Assessment Year 2015-16 as per important clause mentioned in JDA and AO has also noted that out of 7 co-owners Sapthagiri Enterprises has declared the capital gain in the Assessment Year 2015-16. As per the opinion of the AO, there was a transfer as per section 2(47) of the I. T. Act 1961. However, the assessee contested that the position was given in the Assessment Year 2017-18 resultantly the capital gain has been offered in the year 2017-18. After considering the written submissions, the AO computed the long term capital gain of Rs.3,20,76,359/- .
CO No.39/Bang/2024 Page 6 of 9 3. Aggrieved from the above Order, assessee filed appeal before the CIT(A)-2, Panaji. Before the CIT(A), assessee filed detailed written synopsis relying on the various case laws which has been considered by the CIT(A) and allowed the appeal of the assessee.
Aggrieved from the above Order, Revenue filed appeal and assessee has filed Cross Objection (C.O.). In the case of appeal filed by the Revenue, learned DR relied on the Order of the AO and submitted that as per the JDA, entire rights were transferred to the builder and builder has started construction after obtaining requisite approvals from the concerned authorities and the Saptagiri Enterprises has also offered capital gain in the Assessment Year 2015-16. There was incriminating document found during the course of search in the case of Bharath Beedi Work (P) Ltd. Therefore, after recording satisfaction, notice under section 153C of the Act was issued. The JDA was found during the course of search and the assessee was a co-owner of the 7 landlords. Assessee has also not filed valid return. Therefore, the return filed is to be treated as an invalid return and in case of invalid return, notice under section 143(2) of the act is not required to be issued to the assessee. The assessee was allowed time as per notice issued under section 153C of the Act, assessee did not file its return of income as per time granted. The time granted to file return of income is within the due date and as per section 153C r.w.s. 139 of the Act, there is no such provision to file return of income belatedly. He also submitted that even the AO has not issued notice u/s 143(2) of the Act, the Hon’ble High Courts have decided that in case of proceedings u/s 153A/153C no notice is required to be issued u/s 143(2) of the Act. The AO has rightly completed assessment under section 144 of the Act.
4.1. The CIT(A) has wrongly noted that there is no incriminating material found during the course of search. The JDA was unearthed during the course CO No.39/Bang/2024 Page 7 of 9 of search proceedings and it has been seized. On merits the CIT(A) has not considered the fair market value of the assets. Considering the facts and circumstances and the relevant clause of the JDA, the capital gains are to be taxed in the year JDA was executed and the possession was handed over.
The learned Counsel for the assessee reiterated the submissions made before the AO and CIT(A) and submitted that the CIT(A) has rightly allowed the appeal of the assessee after considering written submissions which is quoted in his Order. Therefore, the Order of CIT(A) is correct. Assessee is a regular income tax return filer. Assessee has offered capital gain to tax when the possession was handed over in the Assessment Year 2017-18 and submitted that the actual transfer was taken place as per section 2(47) of the Act. She relied on the judgment of Hon’ble Apex court in the case CIT v. Balbir Sing Maini & Ors reported in [2017] 398 ITR 531 (SC) and she further submitted that after receipt of the notice, assessee was trying to file online return but because of technical glitches in the income tax portal assessee was unable to file income tax return within the due date and immediately it filed income tax return manually with a covering letter dated 27.07.2021 with the Assistant / DCIT, Central Circle – 2, Mangalore. Thereafter, immediately assessee filed return on 11.08.2021 electronically which is placed at Paper Book Page No.85 and a letter to the DCIT, Central Circle – 2, along with ITR which is placed at Paper Book Page Nos.92 to 127. She also referred to the income tax return filed for the assessment Yer 2017-18 dated 11.08.2021 along with computation of income and other capital gain on the transfer of land as noted by the AO and the assessee’s share of 25.93% which is placed Paper Book Pages 128 to 134. The assessee has offered the capital gain in the AY 2017-18. She further submitted that the CO filed by the assessee is supportive of the Order of the CIT(A).
CO No.39/Bang/2024 Page 8 of 9 6. Considering the rival submissions, we noted that as per the search conducted in the case of M/s Bharath Beedi and JDA was found and assessee is a co-owner out of the 7 landlords holding share of 25.93%. Accordingly, notice under section 143 of the Act was issued to the assessee but the assessee could not file return of income within the due date. Therefore, AO treated as invalid return and completed assessment under section 144 of the Act. We have gone through the letter filed by the assessee which is placed at Paper Book page Nos.22 along with copy of manually filed ITR, the assessee had tried to file return online but as there was technical glitches in the income tax portal, this fact has not been denied and there covid 19 pandemic period was running and immediately thereafter assessee has filed return on 11.08.2021 declaring loss of Rs.57,88,186/-. Assessee has offered capital gain in the year of possession was handed over i.e. AY 2017-18. law relied on by the learned Counsel for the assessee in the case of CIT v. Balbir Sing Maini noted supra regarding transfer of property for computation of capital gain as per section 2(47) of the Act is applicable to the case of the assessee. Respectfully following the judgment of Hon’ble Apex Court, we hold that transfer took place when the possession was handed over in the Assessment Year 2017-18. Resultantly, assessee has rightly offered capital gain in the Assessment Year 2017-18. The Capital gain computed by the AO for the impugned Assessment Year 2015-16 is wrong and the AO has also treated the return as invalid return. Looking into the facts and circumstances of the case, the AO is directed to compute the capital gain following the judgment of the Hon’ble Apex Court noted above in the AY 2017-18. Since in the case on hand, assessee has offered long term capital gain in the Assessment Year 2017-18 but there is no proof that any of the Revenue authorities have examined the correctness of the computation of the capital gain. Therefore, we are remitting the issue back to the file of the AO for examination of the capital gain offered by the assessee in the Assessment Year 2017-18. The AO shall ascertain the correct capital
In the result, appeal filed by the Revenue is allowed for statistical purposes and CO filed by the assessee in support of the Order of the CIT(A). Since we have remitted the appeal of the Revenue to the AO, therefore, the CO filed by the assessee becomes infructuous.
To sum up, in the result, appeal filed by the Revenue is allowed for statistical purposes and CO filed by the assessee becomes infructuous. A common Order passed shall be kept in the respective case files.
Pronounced in the court on the date mentioned on the caption page.