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Income Tax Appellate Tribunal, “A” BENCH, MUMBAI
Before: SHRI D.T. GARASIA & SHRI RAMIT KOCHAR
PER RAMIT KOCHAR, Accountant Member
These two appeals, filed by the Revenue, being are directed against two separate appellate orders both dated 28th April, 2015 passed by learned Commissioner of Income Tax (Appeals)- 42, Mumbai (hereinafter called “the CIT(A)”), for the assessment years 2008-09 and 2009-10 respectively, the appellate proceedings before the learned CIT(A) arising from two separate penalty orders both dated 21-3-2014 passed by the learned Assessing Officer (hereinafter called “the AO”) u/s 271(1)(c) of the Income-tax Act,1961 ITA 4264/Mum/2015 and 2 ITA 4267/Mum/2015 (Hereinafter called “the Act”) respectively for assessment years 2008-09 and 2009-10.
In these two appeals, the Revenue has challenged the deletion of penalty imposed by the A.O. u/s 271(1)(c) of 1961 Act by the ld. CIT(A) vide his two separate appellate orders both dated 28th April, 2015 for assessment year 2008-09 and 2009-10.
First , we shall take appeal for assessment year 2008-09 in .
At the very outset, the ld. Counsel for the assessee submitted that the quantum appeal for assessment year 2008-09 has been decided by the Mumbai-tribunal wherein quantum additions stood deleted by the tribunal in the cross appeals filed by the both assessee and Revenue , vide its common orders dated 24-08-2016 in assessee’s appeal in for assessment year 2008-09 and ITA No. 3338/Mum/2013 for assessment year 2009-10 and Revenue’s appeal in ITA No. 3411/Mum/2013 for assessment year 2008-09 & ITA No. 3412/Mum/2013 for assessment year 2009-10. The ld. Counsel for assessee has produced before the tribunal the copy of the order dated 24-08-2016 passed by the tribunal which is placed in file. The learned Counsel for the assessee submitted that since the quantum addition has been deleted by the tribunal, the penalty levied by Revenue u/s 271(1)(c) of 1961 Act cannot be sustained. The ld. Counsel also brought on record the Tribunal order in ITA No. 6062/Mum/2011 for assessment year 2007-08 order dated 29th March, 2016 in the case of the assessee wherein the Tribunal has deleted the penalty levied u/s 271(1)(c) of 1961 Act by following the order of the Tribunal in ITA No. 7363/Mum/2010 and ITA No. 7982/Mum/2010 passed by the tribunal for assessment year 2007-08 in assessee’s own case wherein the quantum additions were deleted. The said order of the tribunal ITA 4264/Mum/2015 and 3 ITA 4267/Mum/2015 deleting penalty levied u/s 271(1)(c) of 1961 Act in ITA no. 6062/Mum/2011 dated 29-03-2016 for assessment year 2007-08 was produced before us by learned counsel for the assessee and is also placed in file.
The ld. D.R. fairly conceded that the Tribunal has deleted the quantum additions for assessment year 2008-09 and 2009-10 vide aforesaid orders of the tribunal, hence, penalty levied u/s 271(1)(c) of 1961 Act is not sustainable so far as the appeals before the tribunal are concerned.
We have considered the rival contentions and also perused the material available on record including the Tribunal orders. We have observed that the additions which were made in quantum assessment u/s 143(3) r.w.s. 147 of the Act had been deleted by the Tribunal in its order in assessee’s appeal in for assessment year 2008-09 and ITA No. 3338/Mum/2013 for assessment year 2009-10 vide common order dated 24th August, 2016 and in Revenue appeal in ITA No. 3411/Mum/2013 for assessment year 2008-09 & ITA No. 3412/Mum/2013 for assessment year 2009-10. The relevant observation of the Tribunal are reproduced below:-
“ITA.s./3337&3411/Mum/2013-(By Assessee )AY.2008-09: Based on the finding recorded,during the assessment proceedings for the AY.2007-08,the AO issued a notice u/s.148 of the Act for the year under appeal, holding that income chargeable to tax had escaped assessment by reason of omission or failure on the part of the assessee to disclose fully and truly all material facts necessary for his assessment for the year under consideration.The assessee objected to the reopening of the assessment.However, the AO held that a valid notice was issued under section 148 of the Act and assessed the income of the assessee for the year under appeal,as stated in the table.
4.Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authority (FAA).After considering the ITA 4264/Mum/2015 and 4 ITA 4267/Mum/2015 submission of the assessee and the assessment order, he upheld the reopening and partly allowed the appeal filed by the assessee. Therefore, the AO as well as the assessee have filed cross appeals.
5.During the course of hearing before us, it was brought over notice by the represen -tatives of both the sides that identical issue has been deliberated upon by the Tribunal and decided, while adjudicating the appeal for the AY. 2007-08.
We find that the Tribunal had dealt the issue while deciding the appeals filed by the assessee,his brother Satyaprakash Singh and the AOs (ITA/ 7363/ Mum/2010, ITA/7982/Mum/2010,ITA.s./7517&7518/Mum/2010- AY. 2007-08, dated 02/03/2016.),that it had considered the facts of the case at length and had decided the issue in following manner:
“2.Even though both the parties have urged grounds relating to computation of capital gains in the original grounds of appeal
, they have filed an additional ground contesting therein the capital gains is not assessable in AY 2007-08, since the transfer has taken place in the year relevant to the AY. 2003-04 in terms of sec. 2(47) of the Act. Since this additional ground goes to the root of the matter, we admit the same and proceed to dispose of the same.
3. The facts relating to the case are discussed in brief. Both the assessees have inherited a land from their father named Shri Laxmi Singh Udit Singh. After the death of Shri Laxmi Singh Udit Singh in the year 1986, the land was inherited by his five sons. The daughters of Shri Laxmi Singh Udit Singh relinquished their respective rights in favour of their brothers. Thus each son inherited 1/5th share in the land. They entered into an agreement on 10-10-2002 with M/s Brickworks Trading Pvt. Ltd. for development of the land and accordingly executed a power of attorney on 10-10-2002. According to the assessees the possession of the land was handed over to the developers at that point of time itself.
4. The assessees herein had declared long term capital gain in the return of income filed for AY. 2007-08. The department noticed during the course of assessment proceedings of Shri Harinaryan L Singh (one of the co-owners) that the assessees herein along with other co-owners have executed a development agreement on 09-10-2002 with M/s Brickswork Trading Pvt. Ltd. (developer). As per the development agreement, the developer shall get 60% share and the co-owners shall get 40%. It was noticed that M/s Brickwork Trading Pvt. Ltd. has distributed the profit to all the co-owners during the F.Y 2006-07 relevant to the AY. 2007-08. Hence the assessing officer reopened the assessment of the assessees herein for AY 2007-08 to assess the capital gain arising therefrom. In ITA 4264/Mum/2015 and 5 ITA 4267/Mum/2015 the reopened assessment, he varied the capital gains declared by these assessees. In the appeals filed by them before Ld CIT(A), they got partial relief. Hence the revenue as well as assessees are in appeal before us assailing the decision rendered by Ld CIT(A) against each of them.
5. The main contention urged in the additional ground filed by these assessees is that the "transfer" of property took place in the year relevant to the AY. 2003-04 and hence the capital gains assessed in AY 2007-08 was not in accordance with the law. It was further submitted that there is no estoppel against the law and hence, even if the assessee has erroneously offered the capital gains in AY 2007- 08, the same cannot be assessed in that year.
6. On the contrary, the Ld D.R placed strong reliance on the orders passed by tax authorities. He further submitted that the assessees have got their respective share only in the year relevant to the AY 2007-08 and they have also declared the same in their respective returns of income. Accordingly he submitted that the assessees are precluded from taking a different stand at this point of time.
We have heard the rival contentions and perused the record. It is a well settled proposition of law that there is no estoppel against law and hence we are of the view that the assessees herein are entitled to contend that the income offered by them is not liable to tax during the year under consideration, if the said income is not liable to tax at all in that year. In the instant cases, the undisputed fact remains that the assessees have entered into a development agreement with M/s Brickwork Trading Pvt. Ltd. on 09-10-2002. The very fact that the development project was completed in the FY 2006-07 itself shows that the agreement should have been entered much earlier. The power of attorney executed in favour of the developer has been registered in Oct., 2002. Hence there is merit in the submissions of the assessees that the possession was handed over to the developer at that point of time itself.
8. In this regard, we may refer to the provisions of sec. 2(47), which defines the word "transfer". For the sake of convenience, we extract below the provisions of clause (v) and (vi) of sec. 2(47) of the Act:-
"2(47) "transfer", in relation to a capital asset, includes, ...... (v) any transaction involving the allowing of the possession of any immovable property to be taken or retained in part performance of a contract of the nature referred to in sec. 53A of the Transfer of Property Act, 1882 (4 of 1882); or (vi) any transaction (whether by way of becoming a member of, or acquiring shares in a co-operative society, company or other association of persons or by way of agreement or any arrangement or in any other manner whatsoever) which has the effect of transferring, or enabling the enjoyment of, any immovable property.
ITA 4264/Mum/2015 and 6 ITA 4267/Mum/2015
In the instant case, by virtue of development agreement, the assessee has handed over the possession of the impugned land during the FY 2002-03. Hence, in terms of sec.2(47)(v) and 2(47)(vi) of the Act, the taxability of Capital gain has to be considered in AY 2003-04. Our view gets support from the decision rendered by Hon'ble Bombay High Court in the case of Chaturbhu Dwarkadas Kapadia Vs. CIT ( 260 ITR 491). 9 The legal position of development agreement vis-à-vis section 2(47(v) of the Act was considered by the Hon'ble Bombay High Court in the case of Chaturbhuj Dwarkadas Kapadia, cited supra. The relevant observations of the High Court, in that case, are extracted below:
"It was argued on behalf of the assessee that there was no effective transfer till grant of irrevocable licence. In this connection, the judgments of the Supreme Court were cited on behalf of the assessee, but all those judgments were prior to introduction of the concept of deemed transfer under section 2(47)(v). In this matter, the agreement in question is a development agreement. Such development agreements do not constitute transfer in general law. They are spread over a period of time. They contemplate various stages. The Bombay High Court in various judgments has taken the view in several matters that the object of entering into a development agreement is to enable a professional builder/contractor to make profits by completing the building and selling the flats at a profit. That the aim of these professional contractors was only to make profits by completing the building and, therefore, no interest in the land stands created in their favour under such agreements, That such agreements are only a mode of remunerating the builder for his services of constructing the building (see Gurudev Developers V Kurla Konkan Niwas Co-operative Housing Society (2000) 3 Mah LJ 131). It is precisely for this reason that the legislature has introduced section 2(47(v) read with section 45 which indicates that capital gains is taxable in the year in which such transactions are entered into even if the transfer of immovable property is not effective or complete under the general law. In this case that test has not been applied by the department. No reason has been given why that test has not been applied, particularly when the agreement in question, read as a whole, shows that it is a development agreement. There is a difference between the contract on one hand and the performance on the other hand. In this case, the Tribunal as well as the department have come to the conclusion that the transfer took place during the accounting year ending 31.3.1996, as substantial payments were effected during that year and substantial permissions were obtained. In such cases of development agreement, one cannot go by substantial performance of a contract. In such cases, the year of chargeability is the year in which the contract is executed. This is in view of section 2(47(v) of the Act. ......
........ In this case, the agreement is a development agreement and in our view, the test to be applied to decide the year of chargeability is the year in which the ITA 4264/Mum/2015 and 7 ITA 4267/Mum/2015 transaction was entered into. We have taken this view for the reason that the development agreement does not transfer the interest in the property to the developer in general law and, therefore, section 2(47)(v) has been enacted and in such cases, even entering into such a contract could amount to transfer from the date of agreement itself. .... Therefore, if on a bare reading of a contract in its entirety an assessing officer comes to the conclusion that in the guise of agreement for sale, a development agreement is contemplated, under which the developer applies for permissions from various authorities, either under power of attorney or otherwise and in the name of the assessee, then the assessing officer is entitled to take the date of contract as the date of transfer in view of section 2(47(v)..... We do not find merit in the argument of the assessee that the court should go only by the date of actual possession and that in this particular case, the court should go by the date on which irrevocable licence was given."
We feel it necessary to discuss about the facts of the case of Charubhuj Dwarkadas Kapadia, referred supra, in order to understand the legal proposition laid down by the Hon'ble Bombay High Court. In that case, the assessee entered into an agreement on 18.8.1994 to sell the property to a builder for a consideration of Rs.1.85 crores with a right to the builder to develop the property in accordance with the relevant rules. The assessee shall grant an irrevocable license to enter upon the assessee's share of the property upon receipt of necessary permissions and approvals and also the NOC under Chapter XXC of the Income tax Act. By 31.3.1996, the builder obtained most of the approvals and also paid major portion of the consideration. The power of attorney was executed in favour of the builder on 12.3.1999. The assessee offered the capital gains in the AY. 1999-2000, since the licence and power of attorney were given in the financial year 1998-99. The AO and ITAT held that the capital gains is assessable in the AY. 1996-97 since substantial compliance of terms of agreement has taken place before 31.3.1996. However the High Court held that the impugned sale agreement is only a "Development agreement" and hence the capital gain is assessable in the year in which the said agreement was entered into. Thus the contentions of both the assessee as well as that of the revenue with regard to the year of chargeability were rejected.
Thus, as per the legal proposition laid down by the Hon'ble Bombay High Court in the above cited case, the factors such as "date of possession, substantial compliance of the contract etc." are not relevant in the case of development agreements. The High Court has observed that the aim of the builder under the development agreement was to make profits by completing the building and therefore, no interest in the land stands created in their favour under such agreements. Thus the said agreements are only a mode of remunerating the builder for his services of constructing the building. The High Court has noticed that the assessees were entering into development agreements ITA 4264/Mum/2015 and 8 ITA 4267/Mum/2015 with the builders by conferring privileges of ownership to them and were claiming that the capital gains would arise only after registering the conveyance deed. Accordingly the High Court held that the section 2(47)(v) was brought into the statute to plug this kind of loop hole. Thus by considering the object of the Development Agreements and also the purpose of introduction of section 2(47)(v) of the Act, the Hon'ble High Court has finally held that the year of chargeability in the case of Development Agreements is the year in which the contract was executed.
In view of the foregoing discussions, we are of the view that the assessees herein succeed in the additional ground urged by them.Accordingly we hold that the capital gain arising on entering of development agreement is not taxable in the AY. 2007-08, but taxable in AY 2003-04.
In view of the above, we set aside the assessment of capital gains made in AY 2007-08 and hence all the grounds urged by both the parties before us become infructuous.
In the result, the appeals filed by the assessees are treated as allowed and the appeals of the revenue are dismissed.” Respectfully, following the orders of the Tribunal for the earlier AY.,we allow the appeal filed by the assessee and hold that income in question has to be assessed in the AY. 2003-04.Appeal filed by the AO is dismissed. ITA.s.3338&3412/Mum/2013-AY.2009-10: Following our order for the AY. 2008-09,appeals filed by the assessee and the AO are allowed and dismissed respectively.
As a result, appeals filed by the assessee stand allowed and the appeals of the AO are dismissed. “
Keeping in view of the above said Tribunal orders deleting the addition in the quantum proceedings, then, in our considered view, the penalty imposed by the A.O. u/s 271(1)(c) of the Act cannot be sustained. It is observed that the tribunal in aforestated orders for assessment year 2008-09 has given a categorical finding that the capital gain arising on entering of development agreement is not taxable in assessment year 2008-09 but is taxable in ITA 4264/Mum/2015 and 9 ITA 4267/Mum/2015 assessment year 2003-04, by following the decision of the tribunal for immediately preceding assessment year i.e. 2007-08. The order of the tribunal dated 24.08.2016 for assessment year 2008-09(supra) deciding quantum assessments wherein quantum additions were deleted are placed in file. We have also observed that the Tribunal has already deleted the penalty levied u/s 271(1)(c) of 1961 Act vide its order dated 29-03-2016 in for assessment year 2007-08 in assessee’s own case by following the tribunal order in assessee’s own case in ITA no. 7363/Mum/2010 and ITA no. 7982/Mum/2010 for assessment year 2007-08 deleting the quantum additions . Respectfully following the orders of the tribunal cited supra, penalty u/s 271(1)(c) of 1961 Act levied by AO is hereby directed to be deleted and order of learned CIT(A) deleting the penalty u/s 271(1)(c) of the Act is hereby confirmed. We order accordingly .
7. In the result appeal filed by Revenue in 2008-09 is hereby dismissed.
Our above finding in 2008-09 shall apply mutatis mutandis to the Revenue’s appeal in for assessment year 2009-10 wherein the facts are similar . We order accordingly.
In the result appeal filed by Revenue in for assessment year 2009-10 is hereby dismissed.
10. In the result, appeals filed by the Revenue in 2008-09 and Revenue’s appeal in for the assessment year 2009-10 are dismissed.
ITA 4264/Mum/2015 and 10 ITA 4267/Mum/2015
Order pronounced in the open court on 29th March, 2017. आदेश क� घोषणा खुले �यायालय म� �दनांकः 29-03-2017 को क� गई ।