ITO - 4(3)(1), MUMBAI vs. GANPATRAJ B. MEHTA, MUMBAI

We have heard the parties and perused the record. During the year under consideration, the assessee converted its land owned by him into stock- in-trade. Thereafter, the assessee along with Shri Naresh Mehta (who was holding adjacent land) entered into an agreement for development of the land belonging to them with a partnership firm named M/s. Royal Galexy. Though the assessee computed the amount of capital gains at ` 677.65 lakhs and credited the same to its capital account, yet he did not offer the same for taxation. The assessee explained that he has entered into an agreement with M/s. Royal Galexy, but did not handover the possession to them. It was submitted that at the time of handing over the possession of land, a 2 Shri Ganpatraj B. Mehta supplementary deed shall be entered with a developer to confirm the handing over of the possession of land. It was also submitted that the land was proposed to be developed in phases. Accordingly, first phase was developed in succeeding year on the land belonging to Shri Naresh Mehta and at that point of time, a supplementary deed was executed by Shri Naresh Mehta for handing over the possession of land. It was also submitted that Shri Naresh Mehta had computed capital gains tax in the succeeding year only. Accordingly, it was submitted that there was no transfer of land during the year under consideration and hence there is not capital gains liability in terms of section 45(2) of the Act.

The Assessing Officer was not convinced with the contentions of the assessee and accordingly he assessed capital gains of ` 675.58 lakhs to tax. The learned CIT(A) deleted the same and hence the Revenue has filed this appeal before us.

We noticed that the learned CIT(A) has accepted the fact that the assessee did not hand over the possession of the property to the developer. The learned CIT(A), in this regard, has examined the agreement entered by the assessee with M/s. Royal Galexy, the supplementary deed executed by Shri Naresh Mehta and financial statements of Shri Naresh Mehta for the succeeding year, which supported the submissions of the assessee that the land shall be handed over by executing supplementary agreement. The learned CIT(A) also noticed that M/s. Royal Galexy developers have given a letter stating therein that they have not taken possession of the land belonging to the assessee during the year under consideration. Under these set of facts, the learned CIT(A) took support of the decision rendered by Hon'ble Jurisdictional High Court in the case of Chaturbhuj Dwarkadas Kapadia of Bombay Vs. CIT (260 ITR 491) and also decision rendered by the Coordinate Bench of ITAT in the case of DCIT Vs. Crest Hotels Ltd. (2001) 78 ITD 213 and held that the transfer of land has not taken place during the year under consideration so as to attract capital gains tax in terms of section 45(2) of the Act.

The Learned DR strongly supported the order passed by the Assessing Officer, whereas learned AR strongly supported the order passed by the learned CIT(A).

Having heard the rival contentions, we are of the view that the order passed by the learned CIT(A) does not call for any interference since the learned CIT(A) has given a specific finding that the assessee has not handed over possession of the land to the developers. Before us, Revenue could not place any material to contradict the findings given by the learned CIT(A). In the absence of handing over the possession of the land during the year under consideration, it cannot be stated that the transfer has taken place. In the absence of transfer of land, the capital gains liability shall not arise in the hands of the assessee. Hence, we do not find any infirmity in the order passed by the learned CIT(A) and accordingly affirm the same.

In the result, appeal filed by the Revenue is dismissed. Order has been pronounced in the Court on 19.7.2018.