ASST.C.I.T., MANGALORE vs. MR. B. KUNHI AHMED, MANGALORE

Briefly facts of the case are that the respondent-assessee is an individual engaged in business of plywood. Return of Page 2 of 6 income for the assessment year 2008-09 was filed on 1/4/2009 disclosing income of Rs.21,06,490/-. Return of income was processed u/s 143(1) of the Income-tax Act, 1961 [hereinafter referred to as 'the Act' for short]. There were no scrutiny proceedings. Subsequently a search and seizure operations were conducted u/s 132 of the Act in the case of M/s.Hasan Haji & Co. on 04/08/2011. During the course of search proceedings, premises of the respondent-assessee were also searched and cash of Rs.2,00,00,000/- was alleged to be seized. Consequent to the above, a notice u/s 153C was issued on 26/12/2011 in response to which assessee filed same return of income as originally filed u/s 139 of the Act. During the same search proceedings, the department has found an agreement entered by the respondent-assessee with M/s.New India Constructions for development of property situated at Mangalore Thota Village. The Assessing Officer (AO) found that the assessee had not disclosed the said transaction to the department and the respondent-assessee was summoned and examined on this aspect and statement was recorded on 6/9/2011. Though respondent-assessee admitted that there was an agreement entered for development of property, there was no transfer involved as envisaged u/s 2(47)(v) of the Act. Thus, it was submitted that question of capital gains does not arise. Further it is contended that the said property was shown as business asset. The above contention of the respondent-assessee was negatived

Being aggrieved, an appeal was filed before the CIT(A) who, vide para.4.6 of the impugned order, held that since the agreement of development is not registered, the question of transfer of property does not arise and therefore, there are no chargeable capital gains arising out of Agreement for development of property.

Being aggrieved, the revenue is in appeal. Revenue raised the following grounds of appeal:

Ld.CIT(DR) vehemently contended that once the condition specified in section 2(47) of the Act is satisfied, the fact that the agreement is not registered is not material to determine whether there is a transfer or not. Once possession of the property is handed over and consideration received, there is a transfer within the meaning of section 2(47) of the Act. In this connection, he relied on the decision of the Hon’ble Bombay High

After hearing the ld.CIT(DR) and perusing material on record, we are of the considered opinion that the matter requires fresh adjudication as the AO has recorded a finding that the developer has sold his part of the built up area and completed most of the construction. If the Development Agreement entered by the respondent-assessee with developer is not registered, the developer has no valid title to sell his share of built-up area. Therefore, in order to determine true nature of the transactions, we are of the considered opinion that matter be remanded back to the file of the AO for fresh adjudication after considering the sale deeds entered into in respect of built-up area by the respondent-assessee as well as the developer of the property and then decide the case in light of the decision of the jurisdictional High Court in the case of Dr.T.K.Dayalu (supra).