LALCHAND NARAYAN BHAKT,JALNA vs. ITO WARD 2, JALNA

However, the Assessing Officer was not satisfied with the arguments advanced by the assessee. He referred to the provisions of section 2(47)(v) of the Act and observed that there was a part performance of transfer of capital assets as the said land is located within 8 kilometers from the end of the municipal limits of Jalna city. Further the assessee has received an amount of Rs.2 crores on the basis of Essar pavti during the financial years 2010-11 and 2011-12 towards consideration of sale of land, the details of which are as under: DATE AMOUNT 17/02/2011 20,00,000/- 15/03/2011 30,00,000/- 15/05/2011 50,00,000/- 20/08/2011 50,00,000/- 12/12/2011 50,00,000/- TOTAL 2,00,00,000/-

He observed that as per Essar pavti dated 18.02.2011 the land owners have agreed to sell the property to Shri Santosh Karwa for the total consideration of Rs.7,58,70,000/-. Therefore, the assessee has transferred the interest in the said land by making Essar Pavti and it can be said that he has given his land for the development and sale for consideration of Rs.2 crore which the assessee along with his spouse has received from time to time. The Assessing Officer also referred to the terms and conditions for the development / sale of land. He referred to the decision of Hon’ble Karnataka High Court in the case of CIT vs. Dr. T.K. Dayalu reported in (2011) 202 (Kar) according to which the Hon’ble High Court has held that as the possession of the property was handed over to the developer, also sum was received by the owner, therefore, the capital gain should be taxed in the year of entering into development agreement. He also referred to the decision of the Chandigarh Bench of the Tribunal in the case of Hussain Lal Puri vs. ITO wherein it has been held that it is not necessary in terms of section 2(47)(v) of the Act that the developer should have exclusive possession. The concurrent possession of the ownership is possible which gives rights to a limited extent for a limited purpose. Thus, it is very much possible to hold concurrent possession and therefore it falls in the definition of section 2(47)(v) of the Act. Since the assessee in the instant case has virtually handed over the property to Shri Karwa vide Essar Pavti dated 18.02.2011 and received an amount of Rs.2 crores and has not refunded the same to the assessee till date, therefore, the Assessing Officer rejecting the various explanations given by the assessee, made addition of Rs.1 crore on protective basis in the hands of the assessee by observing as under:

Before the Ld. CIT(A) / NFAC, it was submitted that there is no transfer of property in question referred to in agreement of sale dated 18.02.2011 since the terms and conditions of the said agreement have not been complied with by the prospective purchaser. Referring to the provisions of section 2(47)(v) of the Act r.w.s. 53A of the Transfer of Property Act, 1882 it was argued that the agreement to sell effected on a stamp paper of Rs.100/- and notarized is not enough and the agreement is required to be registered before the State Government authorities. Since this has not been done, the question of treating the amount of Rs.2 crore by the assessee and his wife as a part of transfer of the land does not arise. It was reiterated that the possession of the land in question has not been handed over and remains in the name of the assessee and his spouse in the government records. It was argued that since no transfer has taken place and the entire amount received is only an advance against the proposed sale of the property, therefore, nothing is chargeable to tax. Referring to the decision of Hon’ble Supreme Court in the case of CIT vs. Balbirsing Maini vide Civil Appeal No.15619 of 2017 it was argued that any document which needs registration but has not been registered will not have any value other than filing a case for specific performance of the contract. It was accordingly argued that the addition made by the Assessing Officer should be deleted. It was also submitted that Shri Santosh Karwa has filed a civil suit for specific performance of contract and also filed criminal proceedings against the assessee.

However, the Ld. CIT(A) / NFAC was not fully satisfied with the arguments advanced by the assessee. He observed that the assessee during the impugned assessment year has received an amount of Rs.50 lakhs along with his wife. He, therefore, sustained the addition to the extent of Rs.25 lakhs in the hands of the assessee as forfeiture amount to be considered as ‘Income from other sources’ by observing as under: “Ground Nos. 2 to 6 of this appeal pertains to similar issue, hence for the sake of brevity and convenience, these grounds of appeal are being dealt together. In the impugned order, the AO has observed that during the course of survey action on Shri Santosh Pannalal Karwa at 1-20-15, Karwa Building, Dr. R.P. Road, Jalna-431203 various incriminating documents were found and impounded and certain documents of land transaction pertaining to the assessee were found and impounded from the said premises. The said documents are either Essar pawati's (Agreement for payment made against sale of land) or Bharana Pawati (Confirmation/Agreement for receipt of subsequent payment). It is evident that the assessee was in receipt of Rs.2,00,00,000/- on the basis of above documents during the FY 2010-11 and 2011-12 towards consideration of sale of land out of total amount agreed for. Appellant has contended that the amount received by them together represents advance against proposed sale of land bearing gut no.192/2 against total agreed

1. consideration of Rs.7,58,70,000/-. That since, the intended purchaser, Shri Santosh Karwa has not performed his responsibility to fulfill the terms of contract as agreed to in agreement to sale dated 18th Feb 2011 as he has not made full payment and on the other hand is seeking refund of money along with interest and compensations. Appellant in support of his contention has furnished copy of Civil Suit filed in Court of Jalna and further litigation evidence in respect of performance of contract by the intended purchaser the outcomes of which are seen drawing in favor of the appellant family. It is seen that Shri Santosh Karwa filed civil suit for specific performance of contract and also filed criminal proceedings against appellant side. The civil suit filed by Shri Santosh Karwa is seen rejected vide order of the Joint Civil Judge, Senior Division, Jalna vide order dated 29th Mar 2017 and the matter is further claimed to be sub-judice. Criminal proceeding filed by Shri Santosh Karwa are also seen rejected by lower Court. Appellant has also submitted that the review petition filed by Shri Santosh before Hon'ble Sessions Judge has also been rejected and the matter is pending before the Hon'ble High Court. This appeal has considered the above submission of the appellant and the copy of suits discussed above which substantiates the appellant's contention. Nevertheless, if the said agreement stand cancelled without transfer of capital assets, there is an amount of Rs.2,00,00,000/-, which has been forfeited by the appellant and other sellers. A substantial period (14 years at this time of deciding the appeal) has lapsed since the initiation of the transactions and no material is present on record which suggest any return of the realized amount. The appellant hasn't provided any material evidence to demonstrate that the said amount has been returned back or efforts have been made to return it back, if the said agreement has been cancelled. Apposite it would to highlight that the said transactions of Rs.2,00,00,000/- took place in F.Y. 2010-11 and 2011-12. During the year under consideration an amount of Rs.50,00,000/- was received in total, out of which share of appellant arrives at Rs.25,00,000/-. For want of any proof of return of such advance amount, this appeal is inclined to hold that the same needs treatment as forfeited amount and as such required to be taxed as per the applicable provisions of the Income Tax Act, 1961. Therefore, addition amounting to Rs.25,00,000/- is sustained as forfeiture amount to be considered as Income from Other Source. Accordingly, these grounds of appeal are party allowed.”

Aggrieved with such order of the Ld. CIT(A) / NFAC, the assessee is in appeal before the Tribunal by raising the following grounds: 1. The learned Assessing Officer (AO) erred in making an addition of Rs.1,00,00,000/- being the 50% share of the appellant, out of Rs.2,00,00,000/- of the advances received against the agreement to sale by considering the same as long term capital gains and taxing the same on a protective basis.

1.

The Ld. Counsel for the assessee strongly challenged the order of the Ld. CIT(A) / NFAC in sustaining the addition of Rs.25 lakhs being the forfeiture of the amount to be considered as ‘Income from other sources’. He submitted that the Ld. CIT(A) / NFAC without bringing any evidence that the assessee has forfeited the amount has held that the assessee has forfeited the amount. Referring to pages 92 and 93 of the paper book he drew the attention of the Bench to the affidavit filed before the Ld. CIT(A) / NFAC according to which the amount was shown to have been received as advance. Further, the matter is under litigation and still sub- judice, therefore the provisions of section 56 of the Act are not applicable.

Referring to the provisions of section 51 of the Act, he submitted that the said section deals with advances received in the course of negotiation of transfer of an immovable property which shall be deducted from the cost for which the asset was acquired or WDV or the fair market value, as the case may be, in computing the cost of acquisition when the same is ultimately sold. He submitted that the impounded document found during the course of survey in the case of Shri Santosh Karwa was an agreement to develop and not an agreement to sell the property. Therefore, the provisions of section 53A of TP Act are also not applicable. Referring to the said agreement, copy of which is placed at pages 13 to 14 of the paper book, he submitted that there is no such clause for forfeiture of the amount in the said agreement. Referring to the provisions of section 56(2)(ix) of the Act, he submitted that as per the said section the income shall be chargeable to tax if any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset, if (a) such sum is forfeited and (b) the negotiations do not result in transfer of such capital asset. Since in the instant case the assessee has not yet forfeited the amount and the matter is still sub-judice, therefore, the provisions of section 56(2)(ix) of the Act are also not applicable. Referring to the decision of Hon’ble Supreme Court in the case of CIT vs. Balbirsingh Maini vide Civil Appeal No.15619 of 2017, he submitted that the Hon’ble Supreme Court in the said decision has held that an agreement of sale which fulfils the ingredients of section 53A of the TP Act must be registered in view of the amendment made by the Registration and other related laws (Amendment) Act, 2001. He also relied on the decision of Hon’ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia vs. CIT reported in (2003) 260 ITR 491 (Bom). He accordingly submitted that the order of the Ld. CIT(A) / NFAC be set aside and the addition of Rs.25 lakhs sustained by him on account of forfeiture of the amount be deleted.

The Ld. DR on the other hand heavily relied on the order of the Ld. CIT(A) / NFAC. He submitted that the Ld. CIT(A) / NFAC while sustaining the addition of Rs.25 lakhs in the hands of the assessee has clearly given a finding that the assessee along with his wife during the year has received an amount of Rs.50 lakhs out of which the share of the assessee is Rs.25 lakhs. Since the assessee did not file any proof of return of such advance, therefore, the Ld. CIT(A) / NFAC has rightly treated the same as forfeiture of the amount by the assessee and thereby brought to tax u/s 56(2)(ix) of the Act. He accordingly submitted that the order of the Ld. CIT(A) / NFAC be upheld and the grounds raised by the assessee be dismissed.

We have heard the rival arguments made by both the sides, perused the orders of the Assessing Officer and Ld. CIT(A) / NFAC and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find the Assessing Officer in the instant case made addition of Rs.1 crore being the amount received by the assessee as his 50% share out of the amount of Rs.2 crore received by him on account of agreement to sell the property, copy of which was impounded during the course of survey u/s 133A of the Act on 13.03.2015 in the case of Shri Santosh Karwa. According to the Assessing Officer the assessee has virtually handed over the property to Shri Santosh Karwa vide Essar Pavti dated 18.02.2011 and received the amount of Rs.2 crore. He, therefore, invoking the provisions of section 2(47)(v) of the Act held that the consideration received is taxable u/s 45 of the Act since the property in question was situated within 8 kilometers of the municipal limits of Jalna city. We find the Ld. CIT(A) / NFAC held that since the substantial period of 14 years has elapsed while deciding the appeal and there is no evidence on record to suggest that the assessee has returned back the amount or efforts have been made to return it back, therefore, the assessee has forfeited the amount. Since the assessee in the instant case along with his spouse has received an amount of Rs.50 lakhs during the financial year 2010- 11, therefore, he directed the Assessing Officer to bring to tax an amount of Rs.25 lakhs being 50% share of the assessee in the property as ‘Income from other sources’. It is the submission of the Ld. Counsel for the assessee that there is no evidence on record that the assessee has forfeited the amount since the matter is still sub-judice and an affidavit to this effect was also given before the Ld. CIT(A)/ NFAC. It is also his contention that the amount so received by the assessee is nothing but an advance and the provisions of section 51 of the Act will take care as and when the property is sold. It is also his submission that the impounded document so found was only an agreement to develop and not an agreement to sell the property and therefore, the provisions of section 53A of TP Act are also not applicable. Further, there is no forfeiture clause in the agreement.

We find some force in the above arguments of the Ld. Counsel for the assessee. A perusal of the copy of agreement, English translation of which is placed at pages 11 to 17 of the paper book nowhere shows any clause regarding the forfeiture of the amount. Further, the assessee during the course of appeal proceedings has given the following details which the Ld. CIT(A) / NFAC has reproduced in his order at pages 11 and 12 and which read as under:

We find the provisions of section 56(2)(ix) read as under: “Income from other sources. 56. (1)…. (2)….. (i)…. …… (ix) any sum of money received as an advance or otherwise in the course of negotiations for transfer of a capital asset, if,— (a) such sum is forfeited; and (b) the negotiations do not result in transfer of such capital asset;”

Since there is no clause of forfeiture and since the matter is still sub-judice, therefore, the provisions of section 56(2)(ix) of the Act, in our opinion, are not applicable to the facts of the present case. We further find there is a specific provision in section 51 which reads as under:

Where any capital asset was on any previous occasion the subject of negotiations for its transfer, any advance or other money received and retained by the assessee in respect of such negotiations shall be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition : Provided that where any sum of money, received as an advance or otherwise in the course of negotiations for transfer of a capital asset, has been included in the total income of the assessee for any previous year in accordance with the provisions of clause (ix) of sub-section (2) of section 56, then, such sum shall not be deducted from the cost for which the asset was acquired or the written down value or the fair market value, as the case may be, in computing the cost of acquisition.”

Therefore, in our opinion, as and when the assessee sells the property the amount of advance so received which has not yet been refunded shall be reduced from the cost of acquisition and capital gain shall be computed accordingly. Since the Ld. CIT(A) / NFAC in the instant case has not brought any evidence on record that the assessee has forfeited the amount and since the matter is still sub-judice and the asset in question still stands in the name of the assessee and his spouse in the government records, therefore, the Ld. CIT(A) / NFAC in our opinion, is not justified in bringing to tax an amount of Rs.25 lakhs in the hands of the assessee as ‘Income from other sources’ by treating the same as forfeiture of the amount. The grounds raised by the assessee are accordingly allowed.

In the result, the appeal filed by the assessee is allowed.