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Facts
The assessee, an individual, filed his ROI for A.Y. 2017-18. His case was reopened under Section 147 based on information of a property sale for Rs. 3,47,85,000/- which he had not offered to tax. The AO added this amount as short-term capital gain, but the assessee contended the transaction pertained to a partnership firm, where he signed as a managing partner. The CIT(A) deleted the addition, stating the income was taxable in the firm's hands.
Held
The Tribunal upheld the CIT(A)'s decision, ruling that the assessee merely signed the development agreement in his representative capacity as a managing partner of M/s. Uma Maheshwari Builders. Therefore, the income, if any, accrued to the firm and not to him individually, making the AO's addition unsustainable. The Tribunal also rejected the revenue's contention regarding Rule 46A, as the development agreement was already before the AO. The assessee's cross-objections became infructuous and were dismissed.
Key Issues
1. Whether income from a property development agreement, where an individual signed as a managing partner of a firm, is taxable in the hands of the individual or the partnership firm. 2. Whether additional evidence submitted during appellate proceedings without a remand report violates Rule 46A of the Income-tax Rules.
Sections Cited
147, 148, 143(3), 144B, 139(4), Rule 46A
AI-generated summary — verify with the full judgment below
Income Tax Appellate Tribunal, Visakhapatnam Bench, Visakhapatnam.
Before: SHRI RAVISH SOOD & SHRI MADHUSUDAN SAWDIA
(निर्धारण वर्ा/Assessment Year:2017-18) Income Tax Officer, Shri Chitripu Umamaheswara Rao, Vs. Vizianagaram. Vizianagaram. PAN:AAWPU2149L (Appellant) (Respondent) C.O. No.04/VIZ/2025 (Assessment Year : 2017-18) (By Assessee) निर्धाररती द्वधरध/Assessee by: Shri G.V.N. Hari, Advocate रधजस् व द्वधरध/Revenue by:: Dr. Satyasai Rath, CIT-DR सुिवधई की तधरीख/Date of hearing: 24/03/2025 घोर्णध की तधरीख/Pronouncement: 15/04/2025 आदेश/ORDER PER MADHUSUDAN SAWDIA, A.M.:
The appeal is filed by revenue and Cross Objections filed by Shri Chitripu Umamaheswara Rao (“the assessee”), feeling aggrieved by the order passed by the Learned Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi (“Ld. CIT(A)”) dated 16.10.2024 for the A.Y. 2017- 18. Since the appeal and C.O. are related to the same assessee, they are heard together and one consolidated order is being passed for the sake of convenience and brevity.
The revenue has raised the following grounds :
3. The brief facts of the case are that the assessee is an individual filed his Return of Income (“ROI”) for A.Y. 2017-18 declaring a total income at Rs.4,10,800/-. The case of the assessee was reopened u/s.147 of the Income Tax Act, 1961 ('the Act') by the Learned Assessing Officer (“Ld. AO”) based on the information that the assessee had sold an immovable property of Rs.4 Crores, but had not offered any income from the transaction in his ROI. Consequently, the Ld. AO issued notice u/s.148 of the Act on 31.03.2021. The assessee filed his ROI in response to the notice issued u/s.148 of the Act declaring the same income of Rs.4,10,800/- as originally filed. During the assessment proceedings, the Ld. AO found that the assessee had executed a development agreement dated 29.07.2016 for a property valued at Rs.3,47,85,000/-. Being not satisfied with the submission of the assessee, the entire transaction of Rs.3,47,85,000/- was treated as income in the hands of the assessee. Accordingly, the Ld. AO completed the assessment u/s.147 of the Act on 30.03.2022 making the addition of Rs.3,47,85,000/- in the hands of the assessee.
4. Aggrieved with the order of Ld. AO, the assessee filed appeal before the Ld. CIT(A). The Ld. CIT(A) deleted the addition made by the Ld. AO, as per his observation at para no.6.2 of his order which is to the following effect :
5. Aggrieved with the order of Ld. CIT(A), the revenue is in appeal before us. The Learned Department Representative (“Ld. DR”) relied on the order of Ld. AO and submitted that, the Ld. CIT(A) erred in deleting the addition without properly appreciating the facts. The Ld. DR also submitted that the Ld. CIT(A) failed to call for a remand report from the Ld. AO despite the assessee submitting the development agreement as additional evidence before the Ld. CIT(A), which is a violation of Rule 46A of the I.T. Rules, 1962. Finally, the Ld. DR prayed before the bench to set aside the order of Ld. CIT(A) for fresh adjudication.
6. Per contra, the Learned Authorised Representative (“Ld. AR”) submitted that, the Ld. AO had wrongly taxed the entire transaction in the hands of the assessee and the Ld. CIT(A) had correctly deleted the addition. The Ld. AR further submitted that, the assessee has not transferred any property during the year under consideration. In support of his submission, the Ld. AR brought our attention to the development agreement placed at page nos.30 to 49 of the paper book and submitted that, the development agreement was executed by Uma Maheswari Builders, a partnership firm (“developer”) and the assessee has merely signed the documents in his representative capacity. Therefore, incidence of tax liability, if any should be in the hands of the developer. The Ld. AR also submitted that, under development agreement, the tax liability not arises, even in the hands of a developer, rather it arises in the hands of the owner of the property. Accordingly, the addition made by the Ld. AO in the hands of the assessee is not as per law and liable to be deleted. With regard to the objection of the Ld. DR regarding additional evidence, the Ld. AR invited our attention para no.7.2 of the order of Ld. AO, which specifically refer to the development agreement. Accordingly, the Ld. AR submitted that, the Ld. AO had already considered the documents during assessment. Hence, the question of additional evidence under Rule 46A does not arise. Therefore, the objection of the Ld. DR on account of additional evidence is liable to be rejected.
We have heard the rival contentions and also gone through the record in the light of the submissions made by either side. First coming to the objection of the revenue regarding additional evidence, we have gone through the para no.7.2 of the order of Ld. AO, the relevant portion of which is to the following effect :
7.1 On perusal of above, it is abundantly clear that the Ld. AO was already in possession of the documents and the assessee did not submit any additional evidence before the Ld. CIT(A). Since the Ld. AO had already examined the development agreement, Rule 46A does not apply and there is no requirement to call any remand report from the Ld. AO. Accordingly, we reject the objection of the revenue on account of additional evidence.
7.2 Now coming to the issue of the revenue relating to deletion made by Ld. CIT(A) of Rs.3,47,85,000/-, we have gone through the copy of development agreement placed at page nos.30 to 49 of the paper book and found that the assessee had not transferred any immovable property in his individual capacity during the year under consideration. However, the agreement was entered into by developer, wherein the assessee has only signed as managing partner in a representative capacity. It is a settled position of law that a partner signing an agreement in a representative capacity, does not create an individual tax liability for that partner. The tax liability, if any, arises in the hands of the entity that entered into the agreement i.e. developer in the present case. Therefore, in our considered opinion, the assessee has merely signed the document in his representative capacity, no income accrued to him in his individual capacity. Accordingly, the addition made by the Ld. AO is unsustainable. Therefore, we uphold the order of Ld. CIT(A) and dismiss the appeal of the revenue.
7.3 As we have decided the issue against the revenue, we do not propose to adjudicate on the issue raised by the Ld. AR regarding the taxability in the hands of owner of property as well as the developer.
In the result, the appeal of revenue is dismissed.
C.O. No.04/VIZ/2025 (Assessee's C.O.)
The assessee has raised the following grounds :
“ 1. The Ld. CIT(A) ought to have quashed the notice issued in the case of the appellant u/s.148 of the Act as invalid and the consequent reassessment proceedings as void ab initio.
2. The Ld. CIT(A) is justified in deleting the addition of Rs.3,47,85,000/- made by the Assessing Officer towards short term
capital gains.
Any other grounds of cross objection that may the raised at the time of hearing.”
The C.O. of the assessee is against the appeal of the revenue in . As we have dismissed the appeal of revenue, the C.O. raised by the assessee become infructuous. Accordingly, the C.O. of the assessee is dismissed.
To sum up, the appeal of revenue and C.O. of assessee are dismissed.
Order pronounced in the open Court on 15th April, 2025.