MUMMALANENI RAGHAVAN,GUNTUR vs. INCOME TAX OFFICER, GUNTUR

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ITA 628/VIZ/2025Status: DisposedITAT Visakhapatnam27 February 2026AY 2016-179 pages
AI SummaryAllowed

What did the Tribunal hold?

The Tribunal held that the ground regarding the invalidity of the reopening of assessment under Section 147 was not argued by the assessee's counsel, and therefore, this ground was rejected. However, on the merits of the capital gains addition, the Tribunal found that the Joint Development Agreement, which was the basis for levying capital gains tax, was clearly cancelled by both parties. The Tribunal noted that no construction had commenced on the land. Crucially, the Tribunal found no proof that the assessee had received Rs. 70.80 lakhs as alleged by the AO, and the department could not establish this receipt. Consequently, the entire addition for short-term capital gains was deleted. Regarding the penalty under Section 271(1)(c), the Tribunal held that since the primary addition itself was deleted, the consequent penalty had no basis. The Tribunal reasoned that no income was acquired by the assessee, and hypothetical income could not be taxed. Therefore, the penalty was deleted. The assessee's appeals were allowed in both cases.

What were the facts?

The assessee, Mummalaneni Raghavan, filed two appeals before the Income Tax Appellate Tribunal (ITAT) against orders of the Commissioner of Income Tax (Appeals) [NFAC]. The appeals pertain to assessment year 2016-17 and arise from orders passed by the Assessing Officer (AO) under Section 147 read with Sections 144 and 271(1)(c) of the Income Tax Act, 1961. The AO had made additions for short-term capital gains and interest income. The assessee's contention was that a Joint Development Agreement (JDA) with Atha Constructions was cancelled due to the builder's failure to obtain necessary permissions, and no consideration was received. The AO completed the assessment under Section 147 r.w.s. 144 and 144B, alleging receipt of Rs. 70,80,000/-. The CIT(A) confirmed the additions. The assessee argued that the JDA was cancelled on 06.12.2016, no construction commenced, and no rights were transferred. Bank statements were produced to show no receipt of consideration.

What were the issues?

1. Whether the reopening of assessment under Section 147 of the Income Tax Act, 1961, was valid, considering the assessee's grounds that it was based on system-generated information and without tangible material, and that the proceedings were beyond the time limit. 2. Whether the addition of short-term capital gains tax on the Joint Development Agreement (JDA) with Atha Constructions was justified, given the assessee's claim that the JDA was cancelled and no consideration was received. 3. Whether the levy of penalty under Section 271(1)(c) of the Income Tax Act, 1961, was sustainable when the primary addition itself was disputed. Assessee's Contentions: - The reopening under Section 147 was invalid and beyond time limits. - The JDA was cancelled due to the builder's failure to obtain approvals and commence construction. No consideration was received, and the land was inherited. - The AO misunderstood the JDA, which mentioned the builder's cost of construction, not consideration received by the assessee. - Bank statements show no receipt of the alleged Rs. 70.80 lakhs. - The assessment under Section 144 was incorrect despite particulars being filed. - The penalty under Section 271(1)(c) is unsustainable as there was no concealed income. Revenue's Contentions: - The Ld.DR relied on the assessment order and the appeal order passed by the Ld.CIT(A).

Which sections of the Income-tax Act were involved?

Section 147,Section 144,Section 271(1)(c),Section 144B,Section 56,Section 45,Section 48

AI-generated summary — verify with the full judgment below

Income Tax Appellate Tribunal, Visakhapatnam Bench, Visakhapatnam

For Appellant: Shri D.Hema Bhupal

PER OMKARESHWAR CHIDARA, A.M :

These two appeals filed by the assessee are directed against the orders of the Commissioner of Income Tax(Appeals) [“Ld.CIT(A)”],

National Faceless Appeal Centre (“NFAC”), Delhi in DIN &

Order No. ITBA/NFAC/S/250/2025-26/1079838995(1) and ITBA/NFAC/S/250/2025-26/1079840198(1), both dated 21.08.2025, arising out of orders passed by the Ld.AO u/s 147 read with section 144 and 271(1)(c) of the Income Tax Act, 1961 (“the Act”), dated 22.03.2024 and 20.09.2024 respectively, pertaining to the assessment

year 2016-17. 2. The appellant filed an appeal before ITAT, stating that the reopening of assessment u/s 147 of the Act was based merely on system generated information, which is invalid and without any tangible material. In the grounds of appeal, it was mentioned that the assessment u/s 147 is beyond time limit prescribed and hence, the proceedings are void-ab-initio.

3.

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.

4.

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 gains tax in view of the Joint Development Agreement entered into by the appellant with Atha Constructions during the year under 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.

5.

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.

6.

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 L\d.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 transferred to the builder and the essence of levy of capital gains tax will come into play, only when the land is transferred to another 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.

7.

The Ld.DR has relied on the assessment order and appeal

order passed by the Ld.CIT(A).

8.

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.

9.

Based on the addition made by the Ld.AO in the assessment order, which was confirmed by the Ld.CIT(A), the L\d.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 L\d.AO

is deleted and the assessee’s appeal is allowed.

10.

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

Order pronounced in the Open Court on 27 February,

2026.

(<dter Ge) (atFarteax Fant) (RAVISH SOOD) (OMKARESHWAR CHIDARA) rain Waea/ JUDICIAL MEMBER al Waka / ACCOUNTANT MEMBER Visakhapatnam

dated 27.02.2026. L.Rama/sps aTrexret ufafera smfta/ Copy of the order forwarded to:-

1.

Puiftdt/The Shri Mummalaneni Raghavan, D.No.11-

Assessee 595/1, Annapurna Nagar West, 5‘ Lane, 5th Cross Road, Amaravathi Road, Guntur

2.

| TORA/ The The Income Tax Officer, Ward-2(1), Revenue Guntur

3.

| The Principal Commissioner of Income Tax, Visakhapatnam

4.

| faurta cia, sree aiticia aftereu, fasremeqa / The DR, ITAT, Visakhapatnam

5.

Sa / Guard fi

SIGIR / 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

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