ITO 28(2)(4), NAVI MUMBAI vs. PANDIT DASRATH JADHAV, NAVI MUMBAI

Order Under Section 254(1) of Income Tax Act PER PAWAN SINGH, JM: 1. This appeal u/s 253 of the Income-tax Act (‘Act’) is directed by Revenue against the order of Ld. Commissioner of Income-tax (Appeals) [for short ‘the CIT(A)] -33 Mumbai dated 28.09.2004 for Assessment Year (AY) 2011-12. Though, the Revenue has raised as many as four grounds of appeal but as per our opinion, the only substantial ground of appeal raised by the assessee is that “The ld. CIT(A) erred in deleting the addition of Rs. 80,82,100/- as capital gains on grant of development rights”.

2. Brief facts of the case are that the assessee filed his return of income for relevant AY on 29.08.2011 declaring total income of Rs. 7,67,6498/-. The assessment was completed u/s 143(3) of the Act on 27.01.2014. The Assessing Officer (AO) while framing the assessment besides the other addition, made the addition of Rs. 80,82,100 as capital gain on account of transfer of development rights in the land. On appeal before the ld. CIT(A), the addition was deleted by ld. CIT(A). Thus, 2 Shri Pandit Dasrath Jadhav being aggrieved by the order of ld. CIT(A), the Revenue has filed the present appeal before us.

4 Shri Pandit Dasrath Jadhav (h) Andhra Networks Vs DCIT 57 taxman.com 115(Hydrabad Tribunal) (i) DCIT Vs Jai TRikanand Rao 41 taxman.com 453(Mumbai-Tri) (j) Sunil Sidhrathbhai Vs CIT (1985) 23Taxman14W(SC) (k) Chaturbhuj Dwarkadass Kapadia Vs CIT 260 ITR 491(Bombay) 4. We have considered the rival contention of the parties and gone through the orders of authorities below. We have also gone through the various decisions relied by the parties and the written submission filed by the assessee. The AO while framing the assessment observed that the assessee entered into agreement for transfer of development right and received an amount of Rs. 6,65,000/- as reflected in the balance-sheet as a non-refundable deposit. The assessee executed agreement dated 14.03.2011 for development of plots, the assessee was asked to furnish the details of the amount received and the amount accrued on account of execution of agreement from the date of execution onward along with profit & statement of profit along with bank statement. The assessee filed his reply dated 09.12.2013 contending therein that the assessee is co-owner of plot of land admeasuring 399.99 sq. meter. The assessee entered into agreement along with co-owner with the builder. It was further contended that the builder is not required to pay the consideration, which has to construct the building on the plot and thereafter builder would get half of the constructed area and ownership of the plot. The construction of the building is not constructed/completed and none of the parties to the agreement is received the consideration. The assessee further contended that the builder has deposited Rs. 10,00,000/-, the amount is in the form of deposit and which would be a separate figure from the rest of construction while calculating capital gain. The contention of the assessee was not accepted by AO holding that on 31.03.2013, the 95% of the project was completed and till that date the cost incurred on the project was Rs. 1.45 Crore and remaining estimate of Rs. 25,00,000/- to be incurred in future, therefore, the total cost of the project is Rs. 1.70 Crore. Thus, the AO calculated the share of assessee as Rs. 74,17,000/- and also added Rs. 6,65,000/- out of non-monetary consideration. Thus, the assessee has received the total consideration of Rs. 80,82,100/-. The AO further issued a show-cause notice dated 10.01.2014 asking the assessee as to why the amount received by assessee should not be taxed as a capital gain accrued on account of Joint Venture Agreement dated 14.0-3.2011. The 5 Shri Pandit Dasrath Jadhav assessee further submitted his reply and again contended therein that building is still under construction, no C.C. is issued. No Profit & Loss A/c or capital gain can be calculated and hence the levy of taxation not arises. The contention of the assessee was not accepted by AO holding that assessee has allowed the possession of immovable property and the action of the assessee is covered u/s 53A of the T.P. Act and computed the Short Term Capital Gain (STCG). The ld. CIT(A) while considering the contention of the assessee concluded that the contract of the assessee is not a simple and plain case on transfer of land parse for development to its Joint Venture Agreement, where the assessee is a land owner and agreed to allow the development of the land as a part of Joint Venture Obligation. The construction activity was not completed in the year under consideration as the date of agreement itself on 14.03.2011. The Commencement Certificate issued by CIDCO vide letter dated 29.08.2011 and therefore, there is no question of parting of possession in the right of developer during the year under consideration. The ld. CIT(A) relied upon the decision Chennai ITAT in Vijaya Production Pvt. Ltd. reported in 134 ITD 19/ [2012]17 taxman.com 223(Chenai) (TM). The ld. CIT(A) further concluded that no separate entity created for development nor possession was parted to the developer for his independent development. The ld. CIT(A) concluded that the property was not transferred to the developer. Thus, there was no question for capital gain to be assessed in the year under consideration. With regard to the non-refundable security, it was concluded that the same cannot be brought to tax independently on the capital gain arising out of transfer of land which may arise at later stage, therefore, the same cannot be brought to tax in the year under consideration. The assessee has entered in to a joint venture development agreement with the builder in the previous year relevant to the assessment year in the appeal. The assessee contributed the share of land, the assessee has received only Rs. 6,65,000/-.