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Income Tax Appellate Tribunal, KOLKATA ‘B’ BENCH, KOLKATA
Before: SRI SANJAY GARG & SRI SANJAY AWASTHI
order
: October 16th, 2024 ORDER
Per Sanjay Awasthi, Accountant Member:
In this case, the assessee had filed its original return of income on 30.09.2014 at a loss of Rs. 1,51,648/-. Thereafter, the Income Tax Department received information that the appellant had entered into a Joint Development Agreement (in short 'JDA') with one M/s. Happy Bengal Promoters Ltd., being developers. It is recorded that this agreement was in respect of a piece of land owned by the company in Anandapur, Kolkata. This agreement was registered with concerned authorities on 30.07.2013 where the market value of the said property was assessed by the Stamp Valuation Authority at Rs. 11,42,09,678/-. The revenue sharing agreed between the I.T.A. No.: 1168/KOL/2023 Assessment Year: 2014-15 Ritman Commercial Pvt. Ltd. appellant and the developer was in the ratio of 50:50. On the basis of the value arrived at by the Stamp Valuation Authority, the Assessing Officer (hereinafter referred to as ld. 'AO') recorded in the reasons to believe that income to the tune of Rs. 5,71,04,839/- (being 50% of share) had escaped assessment. In light of this, a notice u/s 148 of the Income Tax Act, 1961 (in short the 'Act') dated 11.03.2021 was issued and re-assessment proceedings were initiated. It is seen that the ld. AO proceeded to assess that the amount of Rs. 5,71,04,839/- was deemed income for AY 2014-15 u/s 43CA of the Act. 1.1. Before the Commissioner of Income Tax (Appeals)-20, Kolkata [hereinafter referred to as ld. 'CIT(A)'], the ld. Counsel for the assessee mainly reiterated the arguments advanced before the ld. AO which may be briefly summarized: a) The JDA contained a specific Clause (12.5) which indicated that the appellant and the developer shall jointly execute the agreement for sale with the intended buyers and total sale proceeds shall be shared in the ratio of 50:50. In light of this, it has been averred that the agreement was for revenue sharing and was not a sale of land agreement. b) The land in question was not a capital asset but was considered as a stock- in-trade, hence, Section 53A read with Section 2(47) of the Act would not apply as the same are intended for capital assets only. c) It was mentioned before the ld. CIT(A) that due to various defects, the agreement could not be implemented and was eventually cancelled by mutual consent on 08.07.2023. It is noteworthy that the fact of cancellation on 08.07.2023 has considerable significance for this case as this fact could not have been before the ld. AO, who passed his order on 10.03.2022. We will have occasion to deal with this issue later. d) It was averred before the ld. CIT(A) that the AO failed to consider that revenue sharing can happen only when a building was constructed, completion certificate was obtained and possession of flats were given to the buyers. Therefore, it was again emphasized that there can be no accrual of Page 2 of 7 I.T.A. No.: 1168/KOL/2023 Assessment Year: 2014-15 Ritman Commercial Pvt. Ltd. revenue until and unless the JDA could be fulfilled in letter. e) The appellant relied on the case of Pr. CIT vs. Infinity Infotech Parks Ltd. reported in [2018] 407 ITR 137 (Calcutta) and Pr. CIT vs. Shelter Project Ltd. reported in [2022] 445 ITR 291 (Calcutta). Through these case laws it was argued that no transfer within the meaning of Section 2(47)(v) of the Act would take place until the builder constructed the property and handed over a portion of the same to the assessee as per terms of agreement. 1.2. The ld. CIT(A) thereafter proceeded to record that the ld. AO's actions were unjustified on the dual grounds of the property being stock-in-trade hence, Section 53A read with Section 2(47) of the Act would not apply and also concurred with the arguments of the appellant that a JDA would result in recognizable revenue only after it was allowed to run its full course. Since in this case, this did not happen, therefore, there could be no deemed income as has been determined by the ld. AO. The ld. CIT(A) also relied on the case of Infinity Infotech Parks Ltd. (supra) in arriving at his conclusion.
Aggrieved with this action of ld. CIT(A), the Department has filed an appeal through the following grounds of appeal: “1. That on the facts and circumstances of the case, the Ld. CIT(A) erred in allowing the appeal of the assessee violating the provisions of Rule 46A of the Income Tax Rules by admitting & relying on the registered cancellation agreement dated 08.07.2023 without calling for the comments of the AO on such fresh evidence admitted.
2. That on the facts and circumstances of the cases, the Ld. CIT(A) erred in accepting fresh evidence at the time of appeal proceedings without giving opportunity to the AO to examine the same and offer comments on the same.
3. That on the facts and circumstances of the case, the Ld. CIT(A) erred in relying and accepting the contention of cancellation of agreement without drawing any reference to the original JDA and the fate of the same in the intervening period.
4. That the department craves leave to add, alter and amend, delete, substitute any of the grounds and / or take additional grounds before or at any time of hearing of this appeal.” 2.1. It is noteworthy that the main grievance of the Department revolves
Page 3 of 7 I.T.A. No.: 1168/KOL/2023 Assessment Year: 2014-15 Ritman Commercial Pvt. Ltd. around the ld. CIT(A) taking cognizance of the cancellation of JDA dated 08.07.2023, without going through the procedure enshrined in Rule 46A of the Income Tax Rules, 1962. As had been mentioned earlier, this agreement would not possibly have been before the ld. AO since it is at a later date than the date of passing of the assessment order. 2.2. The ld. D/R pointed out that the ld. CIT(A) has mentioned this agreement in several places in the impugned order and appears to have been persuaded by this document in holding that the JDA could not be completed and hence, there was no ground for any revenue from the JDA. The ld. CIT(A) should have confronted the ld. AO with this new evidence. 2.3. The ld. A/R relied on a case to canvass the point that in a JDA revenue would arise only when the terms of the said document were fulfilled completely. It was also averred that the ld. AO has resorted to Sections 53A read with Section 2(47) of the Act even when the piece of land was demonstrably held as stock-in-trade. This fact has also been pointed out from the narration in the accounts which have been labeled as "work-in-progress" at 762 Anandapur, Kolkata, KMC Ward 108, PC Tiljala.
The orders of authorities below, the paperbook filed by the appellant and the arguments of ld. DR/AR have been carefully considered. The moot points here are the following: a) Whether there could be any revenue for the year under consideration from a JDA the terms of which admittedly were not fulfilled in AY 2014-15. b) Whether the provisions of Section 53A read with Section 2(47) of the Act would apply to the asset under consideration even when the appellant has considered it to be a stock-in-trade. c) Whether the outcome of the impugned issue would have been different had the cancellation agreement dated 08.07.2023 was either not brought into the picture or in case considered then whether the comments of ld. AO could have made any difference.
Page 4 of 7 I.T.A. No.: 1168/KOL/2023 Assessment Year: 2014-15 Ritman Commercial Pvt. Ltd. 3.1. In this case, it would be worthwhile to recall that Rule 46A of the Income Tax Rules, 1962 is a mechanism to allow an appellant to place documents or facts before the ld. CIT(A), which could not be placed before the ld. AO for certain specified reasons. In case, such facts or documents are proposed to be placed before the ld. CIT(A) then the ld. CIT(A) is supposed to record reasons for accepting the same and also afford an opportunity for comments/rebuttal to the ld. AO. Admittedly, in this case the document under consideration was certainly not before the ld. AO and was placed before the ld. CIT(A), who has mentioned it in several places in the impugned order, without confronting the same to the ld. AO. In this light, let us explore answers to the three questions raised in para 3 above. The response to the issue 'a' (supra) has to be in the negative following the case of Infinity Infotech Parks Ltd. (supra) where it has been clearly held that no transfer within the meaning of Section 2(47)(v) of the Act would take place until the builder constructed the said property and handed over portion of the same to the assessee as per terms of agreement. Some relevant portions from another case of Pr. CIT vs. Emporis Properties (P.) Ltd. reported in [2023] 458 ITR 68 (Calcutta) deserve to be extracted: “■ From the Joint Development Agreement, it is crystal clear that the assessee continued to be the owner of the property throughout the development of the property and there is no transfer of ownership to the developer. This aspect was rightly noted by the Tribunal. Thus, reading of the entire agreement would show that there was no transfer or sale of asset under the Joint Development Agreement rather the agreement was to develop the land making it saleable and in view of the construction of the same, the developer would take a part of the stock-in-trade. Furthermore, in terms of the termination clause if the developer fails to develop the housing complex and hand over the assessee's allotted area with all common amenities and facilities within the stipulated time of four years together with grace period of one year, the Joint Development Agreement would stand determined and cancelled and the developer shall cease to have any right, title, interest under the Joint Development Agreement and the developer shall be entitled to complete the construction of the incomplete portion of the housing complex provided however the assessee shall refund the entire outstanding amount of interest-free security deposit and the cost of construction of the said housing complex and the value of the construction shall be certified by the structural engineer and architects. Thereafter the Tribunal took note of the decision of the Supreme Court in the case of CIT v.
Page 5 of 7 I.T.A. No.: 1168/KOL/2023 Assessment Year: 2014-15 Ritman Commercial Pvt. Ltd. Balbir Singh Maini [2017] 86 taxmann.com 94/251 Taxman 202/398 ITR 531. The said decision is more or less identical to the facts of the case on hand wherein one of the questions which fell for consideration was whether the transaction under the Joint Development Agreement should be envisaged as transfer exigible to tax by reference under section 2(47)(v) read with section 53A of the Transfer of Property Act, 1882 [Para 7]. ■ After reading the Joint Development Agreement, the Supreme Court found that the owner continues to be the owner throughout the agreement at any state purported to transfer rights akin to ownership to the developer. This is exactly the nature of transaction in the case on hand. That apart, the Tribunal also taken note of how the registering authorities have treated the Joint Development Agreement. The registering authorities have not treated the agreement as a deed of conveyance but have calculated the stamp duty by treating the same under articles 4, 5(f) of Schedule 1A of the Indian Stamp Act. The Explanation under clause (vi) of clause 5(f) states that the expression "Agreement or Memorandum of an Agreement" if relating to a sale shall include an agreement to sell or any memorandum or acknowledgement in relation to transfer or deliver of possession of immovable property with an intent to transfer right, interest in, or title to, such property at any future date. This expression was noted and the registering authorities have calculated the stamp duty on the said amount at the fixed rate and not treating it as a conveyance deed [Para 8].” 3.2. This case has also been relied on in the case of Balbir Singh Maini (supra). Regarding the issue discussed in 'b' (supra), also has to be answered in the negative considering that the profit from sale in stock-in-trade will arise in the year of actual sale to the prospective buyer only. In fact, this was also one of the facts in the case of Emporis Properties (P.) Ltd. (supra). Regarding issue discussed in 'c', it deserves to be mentioned that the document indicating cancellation of JDA has been used to demonstrate that while the JDA was not implemented even in the AY 2014-15, it was eventually cancelled due to legal and operational difficulties. Thus, even if we are to confine ourselves to the facts available for the AY 2014-15, it is clear that in that year the JDA was not implemented at all and therefore, considering the authorities discussed (supra) and the position of law, there could not have been any revenue whatsoever merely on the basis of valuation by the Stamp Valuation Authority. So far as the contention that the ld. CIT(A) has relied upon the registered cancellation agreement without calling for the comments of the ld. AO on this fresh evidence is concerned, it is to be noted that the powers of ld.
Page 6 of 7 I.T.A. No.: 1168/KOL/2023 Assessment Year: 2014-15 Ritman Commercial Pvt. Ltd. CIT(A) are co-terminus with that of the ld. AO. The cancellation agreement in question produced by the assessee was a registered cancellation agreement and the ld. CIT(A) rightly admitted and considered the same in deciding the case before him. No useful purpose will be served in restoring the matter to the ld. AO only because of that the comments of the ld. AO were not sought on the said document whereas, the ld. CIT(A) being higher authority and being in possession of all the powers that are available to the ld. AO, has rightly considered the evidence before him which was in the shape of registered deed and there was no question of any manipulation or creation of this document afterwards. In view of the above discussion, we do not find any merit in the present appeal of the Revenue.
In the result, the appeal of the revenue is dismissed. Order pronounced in the open Court on 16th October, 2024. Sd/- Sd/- [Sanjay Garg] [Sanjay Awasthi] Judicial Member Accountant Member Dated: 16.10.2024 Bidhan (P.S.) Copy of the order forwarded to:
1. 1. DCIT, Central Circle-1(1), Kolkata.
2. Ritman Commercial Pvt. Ltd., 14, Ritman House, Syed Amir Ali Avenue, Park Circus, Kolkata, West Bengal, 700017.
3. CIT(A)-20, Kolkata.
4. CIT- 5. CIT(DR), Kolkata Benches, Kolkata. //True copy // By order Assistant Registrar ITAT, Kolkata Benches Kolkata
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