DR S.V.NARYANASWAMY,BANGALORE vs. THE INCOME TAX OFFICER, BANGALORE

This is an assessee’s appeal directed against the order of ld. CIT (A) – 2, Bangalore dated 02.02.2017 for Assessment Year 2007 – 08.

The assessee has raised as many as 17 grounds but the grievances are three. The first grievance is about validity of reassessment proceedings u/s 148. The second grievance is chargeability of Capital Gain Tax. The third grievance is an alternative argument that even if it is held that the assessee is liable to Capital Gain Tax, it should be also held that the assessee is eligible for deduction u/s 54F. The assessee has also raised an additional ground, which reads as under:- “The Ld AO erred in treating the year of entering into the Joint Development Agreement as the year of taxability of Capital gains Page 2 of 6 completely ignoring the fact that the underlying condition of land conversion for enforceability of the JDA for AY 2007 – 08 did not stand satisfied in AY 2007 – 08.”

It was submitted by the learned AR of the assessee that the issue regarding validity of reassessment proceedings is covered in favour of the assessee by the tribunal order rendered in the case of Smt. Lokamma & others vs. DCIT in to 565/bang/2015 dated 09.11.2016, copy submitted as Annexure – 4 with written submissions. He drawn our attention to Para 6 of this tribunal order and pointed out that it was held by the tribunal in this case that prior to the conversion of agriculture land to non agriculture, it cannot be a transfer in terms of section 2 (47) of the I. T. Act and reopening was held to be invalid and consequent assessment was quashed. Thereafter, he submitted that the conversion of land in the present case has taken place on 04.02.2008 and in support of this, he submitted a copy of the Official Memorandum dated 04.02.2008 by way of additional evidence. He submitted that under these facts, in the present year i.e. A. Y. 2007 – 08, it cannot be said that any transfer has taken place resulting into Capital gain. Learned DR of the revenue submitted that as per the judgment of Hon’ble Karnataka High Court rendered in the case of CIT vs. Dr.T. K. Dayalu as reported in 202 Taxman 531, transfer takes place in the year of JDA if the possession of the property is handed over and part consideration is paid by the developer and therefore, the A. O. is right in taxing the capital gain in the present year because possession was handed over by the land owner to the developer in the present year and the developer has paid security deposit of Rs. 30 lacs to land owner in the present year as per the JDA. In the rejoinder, it was submitted by the learned AR of the assessee that as per Para 12.3 of JDA, the land owner has to render schedule property to the developer in duly converted conditions from the earlier agricultural to Non agricultural residential use from the competent authority and since, the conversion has taken place on 04.02.2008, handing over of possession prior to such conversion is not a valid handing over of possession.

In the present case, notice u/s 148 was issued by the A. O. on 27.03.2014 and as per the summary of reasons noted by the A.O. in Para 2 of the assessment order, there is no mention that the land in question is a converted land. In fact, in the entire assessment order or in the order of CIT (A), there is no reference to this aspect that the land in question is a converted land or not in the present year in spite of the fact that as per the JDA, this was a specific obligation of the assessee being land owner that he has to render schedule property to the developer in duly converted conditions from the earlier agricultural to Non agricultural residential use from the competent authority. Learned DR of the revenue has submitted before us the copy of Form for recording of reasons for initiating proceedings u/s 148 for obtaining approval of the Commissioner/Addl. Commissioner of Income tax along with Annexure thereof containing reasons and in that also, there is no mention about conversion of land. As per the Official Memorandum dated 04.02.2008 brought on record before us by way of additional evidence, the conversion of land in the present case has taken place on 04.02.2008. Hence, this tribunal order is squarely applicable in the present case and the judgment of Hon’ble Karnataka High Court rendered in the case of CIT vs. Dr.T. K. Dayalu (Supra) was duly considered by the tribunal in this case. Hence, respectfully following this tribunal order, we hold that reopening in the present case is not valid because the same is without application of mind on the crucial fact of conversion of agriculture land to non agriculture land on subsequent date not falling in the present assessment year and hence, it does not constitute a tangible material to form a belief that the income has escaped assessment for the present year. Accordingly, we hold that the reopening is not valid and consequential assessment is quashed.

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