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Income Tax Appellate Tribunal, DELHI BENCH “F” NEW DELHI
Before: SHRI G.S. PANNU & SHRI AMIT SHUKLA
PER AMIT SHUKLA, J.M.: The aforesaid appeal has been filed by the Revenue against the impugned order dated 07.06.2016, passed by Ld. Commissioner of Income Tax (Appeals)-XXIII, New Delhi for the quantum of assessment passed u/s.143(3) for the Assessment Year 2013-14. The sole ground raised by the Revenue relates to deletion of addition of Rs.5 crores relates to non-refundable security deposit which was added by the Assessing Officer as undisclosed receipts.
The facts in brief are that assessee-company is engaged in the real estate business and has filed its return of income on 16.07.2014 at an income of Rs.36,47,140/-. A survey was also carried out on 25.04.2013, during the course of which, an agreement dated 07.11.2012 between the assessee- company and M/s. Krrish Greenhomes Pvt. Ltd. was found. As per the terms of agreement dated 07.11.2012, specifically clause no.3.7, Assessing Officer deduced that the developer had paid sum of Rs.5 crores as a non-refundable deposit which has not been taken as receipt by the assessee and instead it has treated as advance. The Assessing Officer thus added the said amount as undisclosed receipt.
Before the Ld. CIT (A), detailed submissions were made and various documents were placed and following features were highlighted from entire gamut of material qua the issue, has been incorporated by the Ld. CIT (A) in the following manner: “the appellant is the legal and registered owners of a contiguous parcel of land admeasuring 10.89 acres at Village- Fazilpur Jharsa, Sector-71, Tehsil & District- Gurgaon on which it had obtained development license for setting-up of a IT Park colony on 28.06.2008, but desirous of development and construction of a residential group housing colony on the land, it entered into an agreement with KGHPL requiring the latter to obtain appropriate development licenses from the Directors, Town and Country Planning/government authority in Haryana (“DTCP”), and the appellant executed a POA in favour of KGHPL; (ii) the appellant agreed to transfer and assign exclusive development rights and entitlement over the land to KGHPL
who were assigned exclusive and absolute development/construction rights and entitlement over the land; (iii) KGHPL was to obtain the changes in the land usage and revised licenses, and to obtain all approvals for implementation and execution of the project for residential group housing colony on the land at their (KGHPL) cost and expense, within five months; (iv) KGHPL was to ensure that earlier LOI for IT Park colony shall remain valid if the LOI for group housing is not granted by the competent authority; (v) the rights and entitlements of KGHPL was to come into force and be effective upon the grant of letter of intent/LOl from DTCP for setting up of residential group housing colony on the land and KGHPL was to carry out all acts for the development and construction of the Project at its costs and expenses including all fees such as EDC/IDS etc and/or charges including service tax, bank guarantee for EDC/IDC, interest and penalty; (vi) in consideration of the grant/transfer/assignment of the rights, titles, interest and entitlements, including the Development Rights, by the appellant to the KGHPL the developed and constructed/built-up area in the Project alongwith the land was to be shared in the ratio of 38% (appellant) and 62% (KGHPL); (vii) KGHPL was to complete construction of the appellant’s share and offer possession within a period of 3 (three) years (which was mutually extended by one year vide agreement dt.
08.01.2013, the grace period provided in the original agreement; (viii) and in consideration of all of the rights, titles and interest assigned, conveyed and transferred to KGHPL, in addition to the development, construction and handing over of the appellant’s share, KGHPL was to pay a sum of Rs. 5,00,00,000 (Rupees five crores only) to the appellant as “non- refundable deposit”, within 10 (ten) days of date of the LOI for group housing colony. In the above agreement it was also provided that KGHPL shall not exit the project till the same is completed so however that in case KGHPL exited earlier than completion, the appellant shall repossess the land and the KGHPL shall handover the building project including its share allocation on as is where is basis free from all lien, encumbrances, dispute, claims of any party including contractor customers and undertake not to claim any amount/damages from the appellant in any manner whatsoever, and that howsoever KGHPL shall be responsible for all the liabilities in respect all the obligations for which it was responsible for as per the agreement, and that KGHPL shall be responsible and liable to meet its obligations towards the Authorities and to pay such amounts as may be required to be paid for keeping the sanctions alive and subsisting. In the agreement it was also provided that considering that KGHPL will be investing substantial sums of money, notwithstanding anything contained herein, neither party shall be entitled to terminate this Agreement for any reason whatsoever if the LOI for group housing is granted/accorded for development/construction of a residential group housing colony on the land.”
Before the Ld. CIT (A), it was further submitted that necessary approvals took lot of time and no activity was carried out on the project and no revenue has been generated from the said project. Accordingly, if no services have been rendered then even on accrued system of accounting, said advance cannot be brought to tax in this year. It was further brought to the notice that dispute was going between the assessee and the said party in respect of the same land and development, etc., which is pending before the Hon’ble Delhi High Court. The Ld. CIT (A) after considering the various submissions and the matter which was subjudice before the Hon’ble High Court, finally observed and held as under: “3.1.6 On perusal of the documents related to the legal notices and the writ petition file before the Hon’ble Delhi High Court it appears that both the appellant and KGHPL first issued legal notices to each other alleging default in non-performance on each other’s part leading to filing of writ petition by KGHPL u/s 9 of the Arbitration & Conciliation Act 1996 being O.M.P. 269/2014 and I.A. No.3969/2014 wherein the Hon’ble Delhi High Court initially passed order on 01.03.2014 directing both the parties to maintain status quo and retrained the appellant from disturbing the possession of the suit property, and vide order dt. 21.05.2014 following compromise affidavits from both parties the Hon’ble High Court allowed the petition to be withdrawn and dismissed the writ. Subsequently following legal notice from the appellant dt. 15.03.2016 and counter legal
notices of KGHPL and the appellant the matter traveled to the Hon’ble Delhi High Court once again being O.M.P.(l)(COMM.) No.162/2016 filed by H.C. Infracon Pvt. Ltd. (HCIPL hereinafter, which had purchased the shares of KGHPL in the interregnum) wherein the Hon’ble High Court passed interim order on 03.05.2016 restraining the appellant from creating any third party rights in respect of the 10.89 acres of the above land or enter into arrangement or agreement of whatsoever nature for the sale/transfer or disposal of the said land and retrained the appellant from disturbing the possession of the suit property, and the matter was listed for hearing on 17.05.2016 but has been adjourned to July 2016 and is still pending. While the primary claim of the appellant is that since KGHPL did not pay Rs. 19.00 crore as EDC/IDC charges (later revised to Rs.43.00 crore) it led to delay in sanction of the building plains and obtaining approval/sanction for residential housing colony and the development of the property was not undertaken and completed within the time of four years and therefore sought termination of the agreement, KGHPL/HCIPL claim is that they had obtained appropriate changes in the land usage and revision in the license but the appellant did not fulfill its commitment of discharging its outstanding taxes, rates, duties, cess etc. of about Rs. 14.22 crores which was paid by KGHPL (at the request of the appellant) and that the IDC charges are fully paid as of April 2016 and it has also given bank guarantee of Rs.2.50 crore to DTCP Haryana against EDC and therefore sought refund of that amount and the same time charging the appellant that the delay in obtaining sanction was due to this reason and challenged the notice for termination of the agreement which according to KGHPL/HCIPL are irrevocable. The appellant also offered two pay orders dt. 21.04.2016 of Rs.2.50 crore each to the other party. However, the matter is still subjudice before the Hon’ble Delhi High Court. 3.1.7 It therefore transpires that against the impugned amount of Rs.5.00 crore KGHPL/HCIPL has made claim of more than Rs. 14.00 crore from the appellant. Thus, while on the one hand, it is not certain even as of today as to whether the appellant has to pay Rs.14.00 crore or any such sum which the Hon’ble High Court may decided which would, if paid, be an expenditure in the hands of the appellant or whether the appellant would be allowed to retain Rs.5.00 crore or whether the two amounts would be adjusted against each other, the service to be rendered by KGHPL/HCIPL or the appellant is still in a limbo the project having not taken off as yet, and therefore treating the said amount of Rs.5.00 crore as revenue receipt being contingent upon the decision of the Hon’ble High Court the said cannot be considered as income of the appellant during the year under consideration. The taxability or otherwise of the impugned amount would arise in the year when it is considered as receipt depending upon the development of the project by the other party and in terms of the decision of the Hon’ble High Court. I hold accordingly. The addition made is therefore deleted.”
At the outset, ld. counsel for the assessee pointed out that there has been settlement agreement entered between the assessee and the said party on 11.01.2017 and Hon’ble Delhi High Court vide judgment and order dated 18.01.2017 has held that in view of the settlement agreement, petition filed by the assessee is disposed off and matter is to resolved in terms of settlement agreement. Thus, the issue of taxability can be decided in view of the settlement agreement and the judgment of the Hon’ble High Court.
Ld. DR also accepted that the matter can go back to the Assessing Officer to decide the issue on the basis of decision of Hon’ble High Court.
After considering the aforesaid submissions and on perusal of the impugned order and material placed on record, we find that the assessee had entered into an agreement with the KGHPL for development and construction of Residential Group Housing Society on the land belonging to the assessee, whereby the other party was required to obtain appropriate development licenses from ‘Director Town and Country Planning’ Haryana and assessee had agreed to transfer and assign exclusive development rights over the land to KGHPL in consideration of all the various conditions as highlighted above in the foregoing paragraph. The KGHPL was to pay sum of Rs.5 crores to the assessee as a non-refundable deposit in lieu of transfer of right and interest etc. in addition to the development, construction and handing over the assessee share. Further due to non-fulfillment of various conditions, dispute has arisen between the two parties and the matter was challenged before the Hon’ble Delhi High Court. Ld. CIT (A) has noted the controversy between the parties as incorporated above and has held that, till Hon’ble High Court decides, the amount of Rs.5 crore is purely contingent and depending upon the decision of the Hon’ble High Court the same cannot be considered as income of the assessee during the year under consideration. Further, the taxability of the said amount would arise in the year when it is considered as receipt depending upon development of the project and in terms of the decision of the Hon’ble High Court.
Now before us, it has been brought on record that a settlement agreement has been entered between the parties on 11.07.2017 and the Hon’ble Delhi High Court vide judgment and order dated 18.01.2017 has taken the settlement agreement on record and has disposed of the said petition to be decided in terms of settlement agreement. Since the issue has attained finality in terms of settlement agreement duly approved by the Hon’ble High Court, the matter is restored back to the file of the Assessing Officer to implement the said settlement agreement and decide the issue. Accordingly, the Revenue’s appeal is partly allowed for statistical purposes.
In the result, the appeal of the Revenue is partly allowed for statistical purposes.
Order pronounced in the open Court on 13th January, 2020.