MUMMALANENI RAGHAVAN,GUNTUR vs. INCOME TAX OFFICER, WARD-2(1), GUNTUR

On merits, the Ld.AR of appellant has mentioned in the grounds of appeal that the Joint Development Agreement entered into by the appellant with the builder was cancelled and hence the levy of short term capital gains tax by the Ld.AO, which was confirmed by the Ld.CIT(A) is incorrect and hence, the addition made by the Ld.AO relating to the short term capital gains should be deleted.

From the assessment order, it is observed that the assessment was completed u/s 147 r.w.s. 144 and section 144B of the Act and the assessment order was passed on 22.03.2024. Short point for adjudication is, whether the assessee is liable for paying capital consideration. As per the information received by the department, the appellant had entered a Joint Development Agreement with Atha Constructions during the A.Y.2016-17 and as per the agreement, the appellant had received total amount of Rs.70,80,000/-. Since the appellant has not given any reply for the query of the department, that the appellant has received an amount of Rs.70.80 lakhs from Atha Constructions as per the Joint Development Agreement, the Ld.AO has completed the assessment, stating that the assessee is liable for paying short term capital gains tax and made addition accordingly. Apart from this, the assessee has received interest income of Rs.870/- and the same was liable for tax under the head “interest other than interest on securities u/s 194A”. Since there is no income tax return and there is no reply from the assessee, this interest income was also taxed u/s 56 of the Act. Thus, the Ld.AO made two additions – first one being short term capital gains and the second one relates to interest income as mentioned above.

Aggrieved by the additions made by the Revenue, an appeal was filed before the Ld.CIT(A). Before the Ld.CIT(A), the appellant has stated that he has entered into Joint Development Agreement with Atha Constructions on 28.05.2015, but, he has not received any consideration as mentioned by the AO in his assessment order. The land which is given towards Joint Development Agreement actually is inherited by him, which is situated within the limits of Guntur Municipal Corporation. It was stated by the appellant that the construction did not start in respect of the said property, because, the builder has failed to procure necessary permissions and approvals to construct the flats as per the Joint Development Agreement. Subsequently, it was mentioned that the appellant has not received any consideration and in fact, the Joint Development Agreement was cancelled. The Ld.CIT(A) has finally confirmed the addition made by the Ld.AO, stating that the assessee has received the consideration and the possession is parted with the builder and hence capital gains tax is leviable.

Aggrieved by the order of the Ld.AO and the Ld.CIT(A), an appeal was filed before ITAT with grounds of appeal stating that the Joint Development Agreement did not go through and finally cancelled. Hence, short term capital gains tax cannot be levied. The Ld.AR of the appellant has filed translated documents submitted before the lower authorities as they were in local language, Telugu. The Ld.AR of the appellant has submitted that even though all the particulars were filed, the Ld.AO has completed the assessment u/s 144 of the Act, which is incorrect. It was also submitted that all the required particulars were submitted to the Ld.CIT(A), clearly stating that the Joint Development Agreement, which was entered into by him with the developer, M/s Atha Constructions did not go through at all and finally it was cancelled, because the builder was not able to get required approvals from the Municipal authorities. In proof of the same, a copy of the agreement relating to deed of cancellation of GPA with Development Agreement dated 06.12.2016 was filed before the Bench. In this deed of cancellation, it was clearly mentioned that due to the difference of opinion between the two parties and also because the builder could not obtain plan approval for the apartment complex nor commenced any construction, despite some time elapsed and hence, the appellant has entered into a termination deed with the builder, which was signed by both the parties on 06.12.2016. As far as the land, which is under consideration was not purchased by him, and it was inherited by him. Since the land was not parted with, nor was transferred to the developer nor any flats were constructed on the said land, the Ld.AR of the appellant has argued that there cannot be any capital gains tax on the same, because, the land still is rightfully owned and possessed by the appellant. No rights on this land were person and the same did not take place in this case. The Ld.AR of the appellant has also filed a copy of the bank statement of the appellant to demonstrate that he has not received any sale consideration or any consideration as alleged by the Ld.AO. The bank statement shows very minimal transactions and there was no credit of the amount alleged to have been received by the appellant to the extent of Rs.70.80 lakhs. The Ld.AR of the appellant has argued that an amount of Rs.70.80 lakhs is mentioned in the Joint Development Agreement, because, it was cost of construction to be incurred by the builder and nowhere in the Joint Development Agreement, it was mentioned that the appellant has received this amount. The Joint Development Agreement nowhere mentioned that the appellant has received the said amount. It appears that the lower authorities misunderstood the contents of the Joint Development Agreement and came to the conclusion that this amount was received by the appellant, it was argued by the Ld.AR of the appellant.

The Ld.DR has relied on the assessment order and appeal order passed by the Ld.CIT(A).

Heard both sides. Even though the “Grounds of Appeal” mentions that the reopening of assessment is invalid, no reasons were mentioned as to why the reopening is invalid. The Ld.AR of appellant also did not argue on this point and hence this ground of appeal is rejected. The documents filed by the Ld.AR of the appellant along with translation copies were perused. These documents were filed before the lower authorities and the same was mentioned by them in their orders also. Since, it was very clear that Joint Development Agreement, which is the genesis for levying capital gains tax, was cancelled by both the parties and since there was no construction at all on the said land, there is no proof that the appellant has received Rs.70.80 lakhs as per the documents filed by the Ld.AR of the appellant and the department also could not prove that the appellant has received this amount, the entire addition is deleted and accordingly, assessee’s appeal is allowed.

Based on the addition made by the Ld.AO in the assessment order, which was confirmed by the Ld.CIT(A), the Ld.AO levied penalty u/s 271(1)(c), stating that the value mentioned in the Joint Development Agreement is the income of the appellant. Since the addition itself is deleted, the consequent penalty does not have any legs to stand. The assessee did not acquire any right to receive income, in as much as alleged right was depending upon necessary permissions being obtained and in this case, no such permissions could be obtained by the developer, hypothetical income could not be taxed u/s 45 r.w.s. 48 of the Act. Since it was held that there is no income at all, there cannot be concealed income. Hence, levy of penalty is incorrect. In view of the above, penalty levied by the Ld.AO is deleted and the assessee’s appeal is allowed.

In the result, both the appeals of the assessee are allowed.

The Principal Commissioner of Income Tax, Visakhapatnam 4. नवभधगीय प्रनतनिनर्, आयकर अपीलीय अनर्करण, नवशधखधपट्िम / The DR, ITAT, Visakhapatnam 5. गधर्ाफ़धईल / Guard file आदेशधिुसधर / BY ORDER LOKIREDDI RAMA cn=LOKIREDDI RAMA c=IN o=INCOME TAX APPELLATE TRIBUNAL ou=INCOME TAX APPELLATE TRIBUNAL 2026-03-06 13:45+05:30 Sr. Private Secretary ITAT, Visakhapatnam