ITO, CHENNAI vs. PRAVIN KUMAR JAIN, CHENNAI

This appeal filed by the Revenue is directed against the order of the Commissioner of Income Tax (Appeals) 3, Chennai dated 18.01.2016 relevant to the assessment year 2008-09. The only effective ground raised in the appeal of the Revenue is that the ld. CIT(A) has erred in deleting the long term capital gain by holding that the joint venture agreement did not result in transfer of capital asset in the year under consideration.

Brief facts of the case are that the assessee has filed the return of income on 27.02.2009 admitting total income of ₹.23,85,329/-. The return filed by the assessee was processed under section 143(1) of the Income Tax Act, 1961 [“Act” in short]. Subsequently, the case of the assessee was selected for scrutiny and notice under section 148 of the Act dated 05.08.2013 was issued and served on the assessee. In response thereto, the assessee filed all the details. After considering the submissions of the assessee and verification of other details of co-owners of the property, the assessing Officer has concluded the assessment under section 143(3) r.w.s. 147 of the Act by levying tax on capital gain of ₹.4,92,96,611/- and determined the total taxable income of the assessee at ₹.5,16,81,940/-.

The assessee carried the matter in appeal before the ld. CIT(A) and made various submissions. After considering the submissions of the assessee, the ld. CIT(A) has held as under: “Respectfully, following my predecessor's findings given in the above mentioned appellate order i.e., in the case of Shri Uttam Kumar Jain, one of the co-owners of the land, application of jurisdictional ITAT Bench decision in the case of Vijaya Productions (P) Ltd., along with his elaborate discussions and other case laws; in addition to the findings of my predecessor, I have noticed, during the appellate proceedings, that there is a whale of difference between the original agreement made on 20.10.2007 and subsequent agreement made on 19.04.2010. It is noticed that subsequent agreement is talking about outright sale whereas original agreement is talking about partnership in the ratio of 65:35 etc. In this background, I hold that transfer of capital asset did not occur in the F.Y. 2007-08 therefore no capital gains did arise in the A.Y.2008-09. In view of the facts and circumstances of the case discussed here in above, A.O is directed to delete the addition made on account of capital gains in the hands of appellant.” 4. On being aggrieved, the Revenue is in appeal before the Tribunal.

We have heard both sides, perused the materials available on record and gone through the orders of authorities below. In the assessment order, the Assessing Officer has noticed that the assessee and six others had entered in to joint development agreement with M/s. Vijay Shanthi Builders Pvt. Ltd. on 20.10.2007 for the development of property of 3.3 acres situated at Chettupedu in Mevalurkuppam, Kancheepuram District. It was also seen that on signing of JV agreement an amount of ₹. 2.50 crores was given to owners of the land i.e., the assessee and six others by the developers i.e. Vijay Shanthi Builders Pvt. Ltd. as interest free refundable security deposit by way of cheque No. 117146 dated 20.10.2007.

It was the submission of the assessee before the Assessing Officer that owners have got only ₹. 2.50 crores on interest free refundable security deposits and no handing over of the property was given to the builders but only power to undertake various jobs to facilitate the JV agreement. However, on perusal of the JV agreement, the Assessing Officer has noticed that as per paras 11,12 and 1 of pages 5 to 7 of the JVA, the owners had given possession of the entire land owned by them [as mentioned in the Schedule –A property] to the builder. Since the possession was given by the owners, the assessee is one of the owners, to the developer, the Assessing Officer was of the opinion that the consideration received by the assessee would fall under the purview of section 2(47)(v) of the Act. When these facts were notified to the AR of the assessee, it was the submission of the assessee that the entire consideration was not received and moreover for all practical purposes, the possession was not handed over to the builder and therefore, pleaded that capital gains would not arise in this case by relying various case law.

During the course of assessment proceedings, the assessee filed a letter, wherein he had enclosed a letter dated 06.07.2009 addressed to Mr. Suresh Kumar Jain, MD of the builder, wherein the assessee has informed the following to the developer: a) We are having huge financial commitment. b) As thing stand today, it is unlikely that you will be able to meet the deadline of October, 2010. c) In spite of all these changes, the progress is in minimum. d) It is not feasible to continue with this J.V. agreement, under these circumstances. Thought the above letter says that ‘it is not feasible to continue with the J.V. agreement’ it did not categorically mention that the assessees have cancelled the joint venture agreement. The above fact was also confirmed with the mentioning of the fact that “we are ready for open discussion and take appropriate decision which will suitable to both”.

However, it was the contention of the assessee that the joint venture agreement dated 20.10.2007 has been cancelled and filed another supplementary agreement dated 19.04.2010. Though, the assessee had stated that no capital gain has arisen in his case in view of cancellation of the agreement but in reality, the Assessing Officer has noticed that 'it is not so' which is evidence from the following points. 1) J.V. Agreement was dated 20.10.2007. 2) To complete the construction within 36 months from the date of plan sanctions, other permissions from the statutory authorities and handing over of vacant possession of Schedule -A property whichever is later, with a grace period of 12 months, beyond the period stipulated in the agreement. 3) At para 11 of JVA, the owner had given original title deeds to the developer for applying permission w.r.t. building plan and other permission from the State Authorities which shows that the possession of the property have been transferred. 4) Para 12 of page 6, by executing General Power of Attorney registered in favour of Sri Suresh Jain, M.D. of Vijay Shanthi Group shows that possessions have been given. 5) The supplementary agreement was dated 19.04.2010 which is 2 years 6 months from the date of J.V. Agreement.

On perusal of the supplementary agreement dated 19.04.2010, the Assessing Officer has noticed that it was only substitution in the Joint Development Agreement, but at the sametime, it is continuous of earlier Joint Development Agreement. The difference between the Joint development agreement and supplementary agreement, as noticed by the Assessing Officer, are given as under:

As per the above details emanating from the assessment order, it is an admitted fact that the assessee has not disclosed about the receipt of ₹.2.50 crores through joint venture agreement entered into between the assessee and the builder M/s. Vijaya Shanthi Builders Pvt. Ltd. During the course of reassessment proceedings, the above facts came into the light. The joint venture agreement entered into between the assessee and the builder on 21.10.2007, subsequent supplementary agreement dated 19.04.2010, copy of the assessment order/appellate order in respect of one of the co-owners Shri Uttam Kumar Jain and other details were not brought on record for perusal of the Bench.

It was not disputed that the assessee and six other joint owners of the property have entered into joint venture agreement with the builder on 21.10.2007 and received ₹.2.50 crores as interest free refundable security deposit through cheque No.117146 dated 20.10.2007. Being a refundable security deposit, if at all to agree with the assessee as well as the ld. CIT(A) that the above joint venture agreement entered into on 21.10.2007 was cancelled, the assessee should have refunded the same to the builder, but, no details were brought on record in this regard.

Further, we are of the considered opinion that the case law relied on by the ld. CIT(A), to decide the issue in favour of the assessee, in the case of Vijaya Productions (P) Ltd. v. Addl. CIT of the Chennai Benches of the Tribunal, is highly distinguishable and entirely different to the facts of the present case.

On perusal of the joint venture agreement, the Assessing Officer has given his observation over the agreement as reproduced hereinabove and the ld. CIT(A) has not given any findings or controvert on the contention of the Assessing Officer that against the joint venture agreement dated 21.10.2007, the possession was taken over by the builder for all purposes. To take cognizance of letter dated 06.07.2009 filed by the assessee having cancelled the joint venture agreement, the assessee should have refunded the interest free refundable security deposit of ₹.2.50 crores, which was deposited by the developer through their cheque dated 20.10.2007. No concrete evidence with regard to cancellation of joint venture agreement was brought on record and moreover, what had happened to the consideration of ₹.2.50 crores paid by the builder by way of interest free refundable security deposit was not brought on record.

If at all to agree with the assessee that by way of supplementary agreement dated 19.04.2010, the assessee sold the property to the builder for ₹.33 crores, there was no need for entering into supplementary agreement and the assessee should have executed sale deed. Until the joint venture agreement is alive, no supplementary agreement could be executed.

Under the above facts and circumstances, we hold that until unless the assessee provides concrete evidence towards cancellation of joint venture agreement by way of refunding the interest free refundable security deposit of ₹.2.50 crores, it cannot be held that the joint venture agreement was cancelled since there was no clear cut terminology stating that the joint venture agreement was cancelled in the letter dated 06.07.2009 addressed to the builder and filed by the assessee before the Assessing Officer since the said letter says that “it is not feasible to continue with the joint venture agreement”, which alone gives no meaning of cancellation of the joint venture agreement. Hence, we set aside the order of the ld. CIT(A) and remit the matter back to the file of the Assessing Officer to re-examine the entire materials available on record and decide the issue fresh in accordance with law after allowing an opportunity of being heard to the assessee. The assessee shall file any evidence having refunded the interest free refundable security deposit before the Assessing Officer for verification. Thus, the ground raised by the Revenue is allowed for statistical purposes.

In the result, the appeal filed by the Revenue is allowed for statistical purposes. Order pronounced on the 23rd June, 2017 at Chennai.