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Facts
The assessee entered into a development agreement for land. The Assessing Officer treated this as a transfer, leading to capital gains. A search also revealed jewellery whose ownership was disputed.
Held
The Tribunal held that handing over possession for development activities under a development agreement does not constitute a transfer as defined under Section 2(47)(v) of the Income Tax Act, especially when no consideration was paid. Regarding the jewellery, the assessee's explanation, supported by an affidavit from his brother-in-law, was accepted.
Key Issues
Whether a development agreement for land amounts to a 'transfer' under Section 2(47)(v) r.w.s. 53A of the Income Tax Act, and whether unexplained jewellery found during a search can be added to income.
Sections Cited
45(5A), 54F, 2(47), 53A, 45, 48, 132(4)
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Hyderabad ‘B’ Bench, Hyderabad
Before: SHRI VIJAY PAL RAO & SHRI MADHUSUDAN SAWDIA
आदेश/ORDER PER SHRI VIJAY PAL RAO : These two appeals by the assessee are directed against two separate orders of Learned Commissioner of Income Tax (Appeals) both dated 28.02.2020 for the Assessment Years 2015-16 & 2017-18 respectively. Since identical issues are involved in both these appeals, they are heard together and are being disposed by consolidated order.
2. The assessee has raised the following grounds :
3. The assessee also raised additional grounds of appeal as under :
1. 4. The assessee is an individual and filed his Return of Income for the year under consideration on 06.10.2014 declaring a total income of Rs.26,84,860/-. Thereafter, a search and seizure operation u/s.132 of the Income Tax Act, 1961 ('the Act') was conducted in the case of the assessee on 21.07.2016. During the course of search and seizure proceedings, it was found that the assessee and 27 other land owners entered into a development agreement dated 11.07.2014 / 19.11.2014. Thereafter, the parties also entered into a supplementary development agreement dated 16.07.2016 whereby the assessee has agreed to hand over a land admeasuring 0.37 guntas to M/s. Vishal Projects Limited for development. Apart from the development agreement, gold and jewellery of 2,480.05 gms was also found from the residence of the assessee which was valued by the government valuer at Rs.1,06,83,964/-. Consequently, the Assessing Officer issued notice u/s. 153A on 30.01.2018, but the assessee did not file any Return of Income in response to the notice. The Assessing Officer framed the assessment u/143(3) r.w.s. 153A r.w.s. 153B of the Act thereby an addition of Long Term Capital Gain for transfer of land under the development agreement was made to the tune of Rs.82,84,130/-. A similar addition was made by the Ld. AO for the A.Y. 2017- 18 along with addition on account of unexplained investment in jewellery of Rs.25,51,325/-. The assessee filed appeal before the Ld. CIT(A) but could not succeed.
5. Before the Tribunal, the Ld. Authorised Representative submitted that the additional ground raised by the assessee are legal in nature and can be decided on the basis of the fact and material already available on record and therefore, it does not require any fresh verification or investigation of any fact. Thus, he has submitted that in view of the judgment of Hon'ble Supreme Court in the case of NTPC Limited Vs. CIT 229 ITR 383 (SC), the additional ground filed by the assessee may be admitted for adjudication.
6. On the other hand, the Learned Department Representative has objected to the admission of additional ground and submitted that the assessee has raised the issue in the additional ground on the basis of subsequent amendment of the provisions of the Act which is prospective in nature and therefore, when the said provisions were not in existence at the time of relevant assessment year, then the amendment in section 45(5A) is prospective in nature. Thus he has contended that the additional ground raised by the assessee cannot be admitted.
7. Having considered the rival submissions and careful perusal of the additional ground filed by the assessee, we find that the assessee has raised these additional grounds involving the questions which are purely legal in nature and go to the roots of the matter. Thus having regard to the legal issues raised by the assessee in the additional ground and adjudication of the same does not require any verification or investigation of any material or fresh facts, the additional grounds raised by the assessee are admitted for adjudication in the light of the judgment of Hon'ble Supreme Court in the case of NTPC Ltd. Vs. CIT (supra).
The Ld. AR of the assessee has submitted that the Assessing Officer has made an addition on account of Long Term Capital Gain (LTCG) on the basis of Joint Development Agreement (JDA) dated 11.07.2014 / 19.11.2014 and supplementary agreement dated 16.07.2016. However, there was no transfer of land under the said development agreement including the supplementary agreement but it was only an agreement between the party for development of the land by the developer. The possession of the land was handed over to the developer only for the purpose of carrying out the development activities and not for transfer of the land against any sale consideration. He has further contended that only a deposit performance security @ Rs.5,00,000/- per acre was received by the assessee and other owner of lands under the said agreement which was to be refunded to the developer without any interest on completion of the development work. He has further contended that as per the provisions of section 45(5A) of the Act, the capital gain shall be chargeable to income tax as income of the previous year, in which the certificate of completion for the whole or part of the project is issued by the competent authority. Further, it is provided that for the purpose of section 48, the stamp duty value on the date of issue of said certificate, of his share, being land or building or both, in the project shall be deemed to be full value of consideration received or accruing as a result of transfer of the capital asset. The Ld. AR has submitted that sub- section (5A) of section 45 has been inserted by the Finance Act, 2017 to remove the hardship faced by the individuals and HUF, tax payers in respect of the development agreement entered into by such assessee. Therefore, the said amendment would be applicable with retrospective effect. In support of his contention, he has relied on the judgement of Hon'ble Supreme Court in the case of CIT Vs. Vatika Township P. Ltd 367 ITR 466 (SC). The Ld. AR submitted that the Hon'ble Supreme Court has observed that where a benefit is conferred by a legislation, the rule against a retrospective construction is different. If a legislation confers a benefit on some persons but without inflicting a corresponding detriment on some other person or on the public generally, and where to confer such benefit appears to have been the legislators object, then the presumption would be that such a legislation, giving it a purposive construction, would warrant it to be given a retrospective effect.
8.1 He further submitted that even otherwise, no transfer took place at the time of JDA until the project is approved by the Hyderabad Metropolitan Development Authority (HMDA). He has referred to the various clauses of the JDA and submitted that the owner of the land and developer have mutually agreed upon the manner in which the lands to be brought into a pool along with adjacent land and schedule property would be developed and constructed by the developer into an integrated residential villas by dividing the property into different sizes, the developer is to prepare comprehensive plan for the schedule land into plots of different sizes for the purpose of construction of villas and shall furnish copies of such plans to the owners and thereafter apply to HMDA and authorities concern for taking the plan sanction. He has referred to clause Nos.4, 6.1, 6.2, 7.4 and 8.1 of the development agreement and submitted that the developer under the agreement was to receive 50% of share in the developed area and proportionate undivided share of land and rest 50% to be received by the owners of the land. He has further submitted that in clause No.11, it is specifically agreed upon between the parties that the land owners shall grant license to the developer to enter upon the schedule property solely for the purpose of development of property contemplated under the agreement. Thus the possession was given to the developer only for development work and not for the purpose of transfer of the land in question in clause No.11.3, it is specifically mentioned that the owners shall not revoke the license till the completion of the project in accordance with and subject to the terms of the agreement and nothing contained in the agreement shall be construed as delivery of possession of the land as part performance of any agreement of sale u/s. 53A of Transfer or Property Act r.w. section 2(47) of I.T. Act. Thus the intention of the parties to the agreement was clear that the agreement was only for carrying out development work and not for sale of the land in question. The Ld. AR further submitted that as per the terms and conditions of the development agreement, the owners of the land were having only the share in the developed project and no separate consideration was paid or to be paid to the owners of the land. In support of his contention, he has relied upon the following decisions : i) Motilal Chhadami Lal Jain vs Commissioner Of Income Tax 456 ITR 68 (SC) ii) Mrs. Margrit Goverdhan Vs. ITO (023) 458 ITR 91 (Kar) iii) Ld. PCIT(C) Vs. Sri Sai Lakshmi Industries Pvt. Ltd. (2003) 458 ITR 373 (Kar) iv) Darshana Anand Damle Vs. DCIT (2023) 459 ITR 60 (Bom) He submitted that on identical facts and identical clauses of the JDA, the Hon'ble High Courts have held that handing over the possession of the land to the developer under the development agreement cannot be considered as transfer of land as the possession was not handed over under the agreement to sell and against the consideration. He has also relied upon the judgment of Hon'ble Supreme Court in the case of Bharat Jayantilal Patel Vs. DCIT 462 ITR 455 (SC).
On the other hand, the Ld. DR has submitted that the amendment in the provisions of section 45(5A) of the Act was brought in the statute vide Finance Act, 2017 w.e.f. 1.4.2018 which is after four years from the judgment of Hon'ble Supreme Court in the case of Vatika Township P. Ltd. (supra), it is a substantive provision, not a declaratory amendment and therefore the same is applicable prospectively w.e.f. the date of amendment and not retrospectively. He has further submitted that the provisions of sections 45(5A) and 54F of the Act shall be read jointly to understand the applicability of the said proposition. He has referred to the assessment order and submitted that the assessee and other land owners received the amount from the developer which was subsequently revised as per the market value of the land. Supplementary agreement shows that the intentions of the parties was to transfer the land to the developer against consideration. Along with the development agreement the assessee and other owners of the land also given the GPA in favour of the developer which constitutes the transfer of the land in favour of the developer. The assessee entered into a development agreement cum GPA with developer by surrendering his land for development and in lieu of the same, the assessee and his wife were allotted one villa each. Thus it satisfied all the conditions for transfer of capital asset as per section 2(47) of the Act r.w.s. 53A of Transfer of Property Act. The Ld. CIT(A) has dealt with this issue in the impugned order. He has relied upon the impugned order of the Ld. CIT(A).
We have considered the rival contentions as well as the relevant material on record. The assessee along with other 27 owners of the land entered into JDA dated 11.07.2014 registered on 19.11.2014 thereby the owners agreed to pool their land for the purpose of development and the developer agreed to construct 42 residential villas. It was also agreed upon between the parties that the developed area will be shared between the land owners and developer in 50:50 ratio. The assessee was owner of the land admeasuring 0.37 guntas. The Assessing Officer assessed the capital gain for the A.Y. 2015-16 at Rs.82,84,130/- by considering the SRO land rate on the date of agreement and taken the 50% of the land as transferred in favour of the developer. The question arises whether the pooling of the land by various persons for the purpose of development of the same through the developer under the JDA would constitute transfer of the land in question. The intention of the parties can be ascertained from the terms and conditions as agreed between the parties to the JDA dated 10.07.2014/19.11.2014. Clause 3.1 of the agreement specifically mentioned the purpose of the agreement between the parties as under :
Thus, it is contemplated under the above clause that the proposed development agreement cum GPA was entered into by the owners of the land on an expressed and specific condition that the developer, shall obtain permission from HMDA and other authorities for enabling it to construction activity within a period of 9 months from the date of handing over of signed plan by the owner to the developer. However, further grace period was agreed upon between the parties. The parties also agreed to share the developed area on 50:50 ratio as per clause 4.1 and 4.2 as under :
11. Even the number of villas to each of the owner is also specified in the said agreement under clause 4.3. Thus, it is clear that the parties agreed that the land pooled by the owners shall be developed by the developer and developed area and other common area including open space shall be shared in 50:50. As per clause 11.1, it is again specified that the owners have granted license to the developer to enter upon the schedule property for the purpose of development. For the sake of completeness, clause nos.11.1 to 11.3 are reproduced as under:
12. The intention of the parties was clearly reduced in writing under these clauses to the extent that the possession of the land was given to the developer only for the purpose of completion of the project and it will not amount to delivery of possession as part performance of agreement to sell as per section 53A of Transfer of Property Act or section 2(47) of the Act. There is no dispute regarding the amount deposited by the developer as a performance security which was to be refunded on completion of the project without any interest by the owner. Therefore, the said deposit of money by the developer cannot be construed as part consideration under agreement to sell or any part performance of agreement to sell. Though the assessee has relied upon various judgments on this point including the Hon'ble Supreme Court in the case of CIT Vs. Balbir Singh 398 ITR 531 (SC) however, in the recent judgment of Hon'ble jurisdictional High Court dated 07.01.2025 in the case of Smt.
Shantha Vidyasagar Annam Vs. ITO, Ward 4(2), Hyderabad in ITTA No.527 of 2006 [170 Taxmann.com 754 (Telangana)] has considered an identical issue of assessment of capital gain by the Assessing Officer based on the development agreement in paras 10 to 19 are as under :
“ 10. We have considered the rival submissions on both sides and have perused the record.
Before proceeding further, it is apposite to take note of relevant statutory provisions of the Income Tax Act, 1961. Section 2(47) defines the expression ‘transfer’ in relation to capital assets. The aforesaid definition is inclusive in nature and reads as under: “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 53-A 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 cooperative 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. Explanation-1.—For the purposes of sub-clauses (v) and (vi) “immovable property” shall have the same meaning as in clause (d) of Section 269-UA Explanation-2.—For the removal of doubts, it is hereby clarified that “transfer” includes and shall be deemed to have always included disposing of or parting with an asset or any interest therein, or creating any interest in any asset in any manner whatsoever, directly or indirectly, absolutely or conditionally, voluntarily or involuntarily, by way of an agreement (whether entered into in India or outside India) or otherwise, notwithstanding that such transfer of rights has been characterised as being effected or dependent upon or flowing from the transfer of a share or shares of a company registered or incorporated outside India;”
In Section 2(47)(v) of the Act, reference has been made to Section 53A of the Transfer of Property Act, 1882, which incorporates the doctrine of equity of part performance of contract. Section 53A introduces in limited form the doctrine of equity of part performance in India where requirements mentioned in the provisions are satisfied (see Ramachandrayya vs. Satyanarayana11). Section 53A of the Transfer of Property Act, 1882 reads as under: “53A. Part Performance:- Where any person contracts to transfer for consideration any immovable property by writing signed by him or on his behalf from which the terms necessary to constitute the transfer can be ascertained with reasonable certainty, and the transferee has, in part performance of the contract, taken possession of the property or any part thereof, or the transferee, being already in possession, continues in possession in part performance of the contract and has done some act in furtherance of the contract, and the transferee has performed or is willing to perform his part of the contract, then, notwithstanding that where there is an instrument of transfer, that the transfer has not been completed in the manner prescribed therefor by the law for the time being in force, the transferor or any person claiming under him shall be debarred from enforcing against the transferee and persons claiming under him any right in respect of the property of which the transferee has taken or continued in possession, other than a right expressly provided by the terms of the contract: Provided that nothing in this section shall affect the rights of a transferee for consideration who has no notice of the contract or of the part performance thereof.”
13. Thus, it is evident that in order to attract the applicability of Section 53A of the Transfer of Property Act, 1882, as held by the Supreme Court in Shrimant Shamrao Suryavanshi vs. Prahlad Bhairoba Suryavanshi, the following conditions are required to be fulfilled:
(1) there must be a contract to transfer for consideration of any immovable property; (2) the contract must be in writing, signed by the transferor, or by someone on his behalf; (3) the writing must be in such words from which the terms necessary to construe the transfer can be ascertained; (4) the transferee must in part-performance of the contract take possession of the property, or of any part thereof; (5) the transferee must have done some act in furtherance of the contract; and (6) the transferee must have performed or be willing to perform his part of the contract.
Now we may advert to the facts of the case in hand. Clauses 4, 6 and 8 of the development agreement dated 04.05.1996 read as under: “4. That 60% of the constructed portion along with 60% undivided share in land would be retained by the Second Party in lieu of their developing the total area of the schedule property with their funds and the other 40% constructed portion along with 40% undivided share in land with all the amenities will be delivered to the First Party in lieu of utilization of the owner’s land by the Second Party for construction. The total super built up area to be delivered to the First Party will not be less than 6000 sq.ft. spread over Ground, First and Second Floors for the first revised sanction or in any other manner agreed upon by both parties. It is agreed that the ratio of 40% will apply for further floors, if constructed, according to the sanction for construction granted by the Municipal Corporation of Hyderabad or Government which shall include a pent house in the owner’s portion with 40% terrace rights.
That as a performance guarantee the Second Party have deposited an amount of Rs.2,00,000/- (Rupees two lakhs only) with First Party vide Pay Order No.002314 dated 04.05.1996 for Rs.2,00,000/- (Rupees two lakhs only) drawn on Bank of Bahrain and Kuwait B.S.C., Somajiguda, Hyderabad. The receipt of which the First Party hereby admits and acknowledged, which is returnable to the Second Party without any interest after the execution of the work entrusted to the Second Party under this agreement and after completion of all further floors. It is hereby clarified that 40% of the builtup portion includes usable area i.e., floor area as also the other areas like Balcony, Staircase, Lifts, Corridors, and other common spaces etc. Similarly, apart from this, 40% of the Car Park area shall be given to the First Party, all these will be clearly demarcated on the plan after obtaining sanction from the MCH or Government.
8. The owner shall be liable to pay Municipal taxes, non-agriculture and other charges and duties relating to the schedule property upto the date of delivery of possession to the developers.”
The assessee vide letter dated 11.05.1996 handed over the possession of the land to the developer. The relevant extract of the aforesaid letter, which is referred to by the assessing officer in para 5.5 of the order reads as under: “5.5 By virtue of a Possession Letter dated 11.05.1996 the assessee handed over possession of the said land to the Developer, which reads as under: “In pursuance of the ‘DEVELOPMENT AGREEMENT’ dated 4th May, 1996, at Hyderabad by and between, I have handed over this day vacant possession of the schedule land mentioned below to the Developers for the purpose of carrying out the development works.””
Thereafter, a supplementary agreement dated 26.12.1996 was executed between the parties, which contains a recital that developer had obtained municipal sanction for construction of residential complex under permit No.6 of 1959, dated 26.07.16 and has commenced construction work.
Thus, from the aforementioned facts, it is evident that even though there is a contract to transfer the immovable property, which is signed by the parties, yet the contract has not been 14 executed for consideration. A sum of Rs.2,00,000/- mentioned in paragraph 6 of the development agreement is only the performance guarantee which is refundable. The aforesaid amount of Rs.2,00,000/- has not been paid by way of consideration of the transaction. The developer has been handed over the possession for the limited purpose of carrying out the development work. Therefore, in pursuance of the development agreement, the possession of the immovable property has not been handed over to the developer as contemplated under Section 53A of the Transfer of the Property Act, 1882. Therefore, the same does not fall within the definition of ‘transfer’ under Section 2(47) of the Act.
Insofar as reliance placed by the learned Senior Standing Counsel for the Revenue in Potla Nageswara Rao vs. Deputy Commissioner of Income Tax (supra) is concerned, the same is an authority for the proposition that element of factual possession and agreement are contemplated as transfer within the meaning of Section 2(47) of the Act. It has further been held that when the transfer is complete, the consideration mentioned in the agreement for sale has to be taken into consideration for the purpose of assessment of income. In the instant case, under the development agreement there is no transfer and the consideration has also not been paid. Therefore, the aforesaid decision of the Division Bench has no application to the fact situation of the case. Similarly, in the case of Commissioner of Income Tax vs. Arvind S Phake (supra), the possession was handed over to the developer and the entire consideration was paid. In the instant case, consideration has not been paid. Therefore, the Division Bench decision of the Bombay High Court also does not apply to the fact situation of the case. In Commissioner of Income Tax vs. Harbour View (supra), the Division Bench of Kerala High Court on the facts of the case found that the possession of the property was handed over under Section 53A of the Transfer of Property Act, 1882. Therefore, the aforesaid decision also has no application to the fact situation of the case.
19. However, the finding has been recorded by the Tribunal that the appellant has handed over the possession of the entire property enabling the developer to enjoy 60% of the constructed area of the building cannot, but be said to be perverse. Similarly, the finding that the assessee is liable to pay capital gains tax during the assessment year 1997-98 also cannot be sustained.”
Thus the Hon'ble jurisdictional High Court has decided this issue by considering an identical development agreement as well as supplementary agreement between the parites and also by considering the earlier judgment in the case of Kotla Nageswara Rao Vs. DCIT and held that for attracting the applicability of section 53A of Transfer of Property Act, 1882, there must be contract to transfer for consideration of any immovable property. The terms of the contract necessary to construe the transfer and the transferee must be in part performance of the contract take possession of the property. The amount deposited by the developer as performance guarantee refundable to the developer without interest after execution of the work does not amount to receipt of consideration for transfer of immovable property. When there is no no contract to transfer the immovable property then handing over of the possession for the purpose of development would not amount to transfer as per the provisions of section 2(47) of the Act r.w. section 53A of Transfer of Property Act. Accordingly, by following the judgment of Hon'ble jurisdictional High Court, we hold that the handing over of the possession by the assessee along with other owners of the land to the developer for carrying out the development work does not amount to transfer of land as per the definition provided u/s.2(47)(v) of the Act r.w.s. 53A of Transfer of Property Act. Since we have decided this issue on merits in favour of the assessee, therefore, the other grounds raised by the assessee become academic in nature and hence we do not propose to express any view on the other grounds raised by the assessee.
13.1 In the result, the appeal of the assessee is allowed.
ITA No.121/Hyd/2021 for A.Y. 2017-18
14. For A.Y. 2017-18, the assessee has raised the following grounds :
“ 1. The order of the Hon'ble CIT(A) is erroneous in law as well as facts of the case. 2. The Hon'ble CIT(A) ought to have observed that the assessing officer has wrongly considered the Supplementary Agreement for bringing to tax the capital gains in the year 2017-18, ignoring the fact that original development agreement was entered in the asst. year 2015-16 and therefore ought not to have held action of the assessing officer as proper and valid.
3. The Honb'le CIT(A) ought to have observed that the assessing officer erred in bringing into capital gain tax without considering the contention of the assesse that the HMDA sanctioned the permission for development of the project on 28.06.2017 only and the project itself is delayed due to the same. Hence, no capital gains had accrued to the assesse and therefore the action of the assessing officer ought to have been held as improper.
4. The Hon'ble CIT(A) ought to have observed that the assessing officer has ignored the provisions of section 45(5A) of the IT Act and brought to tax as capital gains in the impugned year when the project has not even started and therefore the action of the assessing officer is improper and liable for deletion.
5. The Hon'ble CIT(A) ought to have observed that the assessing officer erred in making addition of 898 grams of gold valued at Rs.25,51,325/- by ignoring the fact that the affidavit filed by Sri D Kotha Srinivas Reddy and therefore the action of the assessing officer is improper and liable for deletion.
6. The Hon'ble CIT(A) ought to have observed that the assessing officer has ignored the preliminary statement as well as affidavit filed while rejecting the explanation of the assesse.
Any other ground will be raised at the time of hearing.” The assessee also raised the additional grounds as under :
The Ld. CIT (A)-12, Hyderabad ought to have held that the capital gains accrue U/s. 45(5A) of the IT Act, 1961 only as and when the possession of the villa is given and occupancy certificate is given by the appropriate authority.
The liability to capital gains in the case of the appellant arises only when both the conditions in section 2(47)(v) of the IT Act, 1961 are satisfied.
The liability to capital gains arising out of development agreement-cum- GPA executed on 11/07/2014 and which was registered on 14/09/2015 in respect of Land at Maheshwaram would not arise on the date of development as it was registered only on 14/09/2015 and further the developer not having performed his terms of the contract under, the development agreement fails and therefore the liability to capital gains if any would arise only on handing over of the villa by the developer to the appellant.
The learned CIT(A) failed to note that under clause 6.3 the developer shall complete the project within 36months from the commencing date and the date of approval from competitive authority having been obtained on 28/06/2017 and time being the essence of contract the entire Development Agreement fails as the developer failed to perform his terms of the contract.
The learned CIT(A) erred in holding that there was a "transfer" within the meaning of section 2(47) of the I.T Act on the basis of supplementary agreement registered on 16/07/2016 which was only an agreement to identity the villas to be allotted to various land owners including the appellant.
6. Whether the provisions of section 45(5A) of the IT Act, 1961 which came into force w.e.f. 1/4/2018 whereby the capital gains arise only on the issue of certificate of completion of the project is applicable to the A.Y. i.e. 2017-18, following the doctrine of fairness.”
15. Ground No.1 is general in nature and does not require any specific adjudication.
15.1 Ground Nos.2 to 4 and additional grounds are regarding assessment of Long Term Capital Gains after treating the transaction under JDA and particularly under supplementary agreement dated 16.07.2016 as transfer of immovable property. This issue is common to the issue involved for the A.Y. 2015-16 therefore, in view of our findings for A.Y. 2015-16, this issue is decided in favour of the assessee.
16. Ground No.5 is regarding addition made by the Assessing Officer of Rs.25,51,325/- and confirmed by the Ld. CIT(A) on account of gold jewellery found at the residence of assessee. The Assessing Officer has made addition in respect of 898 grams of gold jewellery valued at 25,51,325/- out of the total gold jewellery found of 2481.500 grams after allowing the benefit of CBDT Circular No.1916 of 1994. The assessee challenged the said addition made by the Assessing Officer on account of unexplained investment in gold jewellery and submitted that the said jewellery belongs to brother-in-law of assessee Dr. K. Srinivas Reddy, a resident of United Kingdom. The assessee also filed an affidavit and confirmation from Dr. K. Srinivas Reddy who is citizen of UK. However, the Ld. CIT(A) was not impressed with the explanation of the assessee and confirmed the addition made by the Assessing Officer.
17. Before the Tribunal, the Ld. AR of the assessee submitted that at the time of recording the statement u/s.132(4) of the Act, the assessee explained the fact that part of the jewellery belongs to his brother-in-law Dr. K. Srinivas Reddy, who is a non-resident Indian and kept the jewellery with the assessee for safe custody. He has further submitted that once the assessee has filed the affidavit and confirmation of Dr. K. Srinivas Reddy, a non-resident Indian, then in the absence of any contrary record or fact, the affidavit filed by the assessee cannot be rejected. The Ld. AR has further contended that the explanation of the assessee cannot be rejected when it was supported by the affidavit of Dr. K. Srinivas Reddy which was filed before the DDIT (Investigation) without any time gap and further during the course of assessment proceedings the assessee again filed another letter dated 18.12.2018 enclosing the earlier affidavit and a fresh affidavit reiterating the confirmation on behalf of Dr. K. Srinivas Reddy that he does not own any house in India and therefore the jewellery was kept with the assessee. Thus the Ld. AR has submitted that when the assessee has discharged his onus to explain that the part of the jewellery belongs to Dr. K. Srinivas Reddy, the brother-in-law of the assessee then, in the absence of any contrary material or fact, the addition made by the Assessing Officer and confirmed by the Ld. CIT(A) is not justified and the same is liable to be deleted.
18. On the other hand, the Ld. DR has submitted that the claim of the assessee, in the absence of any supporting evidence in the nature of bills and vgouchers for purchase of the jewellery in question, cannot be accepted. The Assessing Officer has already allowed the benefit as per CBDT Instruction No.1916 of 1994 and therefore has rightly made the addition of the balance jewellery found from the possession of the assessee. He has relied upon the orders of the authorities below.
We have considered the rival submissions as well as the relevant material on record. There is no dispute that during the course of search and seizure operation, gold and jewellery weighing 2481.500 grams was found at the residence of the assessee. In the statement recorded u/s.132(4) of the Act on 19.09.2016, the assessee in reply to question nos.9 and 10 has explained about the jewellery found during the course of search and seizure as under :
“ Q.9. I am showing you Annexure C[inventory of jewellery found/seized] and the valuation report given by registered valuer according to which the net weight of the jewellery is 2481.500 gms valued at Rs.1,06,83,935/-. Please explain the sources for the same. Ans. Out of 2481.500 gms inventorised, 1381.500 gms of jewellery items belongs to Dr. Srinivasa Reddy, S/o. K Koti Reddy, resident of 16, Grant Close, Kettering NN15 7RQ, UK. He is my brother-in-law (my wife's brother). 1381.500 gms. Are owned by my brother-in-law and his family members. He kept his jewellery with us as his father and mother are also staying with us and he has no other place in India to keep this jewellery. Whenever they visit India they stay in our residence and use the jewellery for various functions. There is no other close relative to keep the said jewellery. I furnished a self attest affidavit dt. 04-09-2016 signed by brother-in-law Dr. K Srinivasa Reddy declaring that certain jewellery listed in the affidavit belonging to him and his family members and kept in in India at his sister's house for safe custody and for use during their stay in India. Therefore, it is requested that the self attested affidavit furnished before DDIT may kindly be considered.
The balance of 1100 gms. of jewellery belongs to me and my family members. The sources for the jewellery owned by our family is mostly they are gifted to my wife during wedding ceremony and received by way of gifts from my closed relatives like my mother, during different occations. Further, as per CBDT instructions 1916 (1994) the allowable limit of gold in case of me 100 gms, in case of my wife 500 gms and in case of my two daughters is 250 gms each which totals to 1100 gms which is below the prescribed limit by the CBDT Instructions. Further,in view of the above submissions, it is requested that the entire jewellery weighing 2481.500 gms. May kindly be released. Q.10 Please furnish the details of Bills and vouchers towards proof of purchase of jewellery pertaining to your brother-in-law and any additional evidence that these jewellery items belonging to him? Ans. Most of my brother-in-law's jewellery belonging to his wife and daughters. The same were received by way of Stridan during wedding and gifts received from close relatives on different occasions. Hence, No bills are available.” From the above statement, it is clear that the assessee at the first occasion explained that out of the total jewellery found from his house the jewellery weighing 1381.500 grams belongs to Dr. K. Srinivas Reddy, resident of UK and brother-in-law of the assessee (brother of assessee's wife). It was also explained that the brother-in-law of assessee has handed over the jewellery as his father and mother were also staying with the assessee and he has no other place in India to keep the jewellery. Apart from the statement recorded u/s.132(4) of the Act, the assessee also submitted an affidavit dated 04.09.2016 of Dr. K. Srinivas Reddy filed before the DDIT (Investigation), Hyderabad whereby Dr. K. Srinivas Reddy confirmed and owned the said jewellery as belongs to him and his family but was kept with the assessee as there was no other place to keep the jewellery except with the assessee being a close relative. The assessee again filed an affidavit and confirmation vide letter dated 18.12.2018 before the Assessing Officer reiterating that the jewellery to the extent of 1381.500 grams belongs to Dr. K. Srinivas Reddy, a resident of UK. The Assessing Officer rejected all these affidavits and confirmation on the ground that the assessee has failed to produce relevant bills / vouchers and therefore, the affidavit is only self-serving document, cannot par take the character of valid piece of evidence. The Ld. CIT(A) has confirmed the addition on same reasoning that in the absence of supporting evidence of bills and vouchers, the affidavit and confirmation filed by the assessee cannot be accepted. It is pertinent to note that it is not the case of filing an affidavit by the assessee as an after thought but the assessee on the earliest occasion at the time of statement recording u/s.132(4) explained that part of the jewellery belongs to brother-in-law Dr. K. Srinivas Reddy and this statement of the assessee has been corroborated by the affidavit of Dr. K. Srinivas Reddy. In the absence of any contrary facts or further enquiry conducted by the Assessing Officer, to disprove the statement of the assessee as well as the affidavit of Dr. K. Srinivas Reddy, it constitute a tangible evidence so far as the jewellery belongs to Dr. K. Srinivas Reddy. Accordingly, in the facts and circumstances of the case when the assessee has discharged his onus by explaining the facts related to the jewellery found during the search and seizure action at the first occasion of statement recorded u/s.132(4) of the Act which is further corroborated by the affidavit of Dr. K. Srinivas Reddy, the addition made by the Assessing Officer on this account is not sustainable and the same is deleted. In the result, the appeal is allowed.