SHRI ARUN MITTAL,INDORE vs. PR. CIT-2, INDORE

BEFORE MS. SUCHITRA R. KAMBLE, JUDICIAL MEMBER AND SHRI B.M. BIYANI, ACCOUNTANT MEMBER (Conducted through virtual proceeding) Assessment Year: 2014-15 Shri Arun Mittal Pr. CIT-2 Indore Indore Vs. (Appellant / Assessee) (Respondent/ Revenue) PAN: ACAPM 7267 P Assessee by Shri C.P. Rawka Shri Venus Rawka, ARs Revenue by None Date of Hearing 24.08.2022 Date of Pronouncement 29.09.2022 O R D E R Per B.M. Biyani, A.M.:

Feeling aggrieved by revision-order dated 29.03.2019 passed by learned Pr. Commissioner of Income-Tax-2, Indore [“Ld. PCIT)”] u/s 263 of the Income- tax Act, 1961 [“the Act”], which in turn arises out of assessment-order dated 16.12.2016 passed by learned ACIT-5(1), Indore [“Ld. AO”] u/s 143(3) of the act for Assessment-Year [“AY”] 2014-15, the assessee has filed this appeal on following grounds:

“1. Ld. Principal Commissioner of Income-tax erred in passing order u/s 263 without considering full facts and reasoning. The initiation of proceedings u/s 263 is totally wrong and illegal.

2. Ld. Principal Commissioner of Income-tax erred in holding that the order passed by the Assessing Officer is erroneous and prejudicial to the interest of revenue.

5. That the appellant carves to leave, add, alter or amend any of the ground at or before hearing.”

3. Briefly stated the facts are such that the assessee-individual submitted his return of income declaring a total income of Rs. 5,76,569/-, which was subjected to scrutiny by issuing notices u/s 143(2)/142(1) of the act. Finally, Ld. AO completed assessment vide order dated 16.12.2016 at a total income of Rs. 7,63,200/- after making certain additions. Subsequently thereafter, the Ld. PCIT examined the record of assessment-proceeding and observed that the assessment-order passed by Ld. AO is erroneous in so far it is prejudicial to the interest of revenue for the reason mentioned in the show-cause notice dated 13.12.2017, reproduced below:

“2. The entire records were gone through by me and on perusal and examination of records, it is found that the order dated 16.12.2016 for A.Y. 2014-15 is erroneous in so far it is prejudicial to the interest of revenue on account of passing of the order without making required enquiries / investigations.

3. As per available records, it is found that during the course of assessment proceedings for A.Y.2014-15 on going through the records it is noticed that you have entered into the joint Development Agreement on 27.08.2013 with M/s. Tirupati Buildcon, Nipaniya, Indore for the development of land owned by the assessee along with other four co- owner situated at south Tukoganj admeasuring to area of 20,102 sq. feet. The agreement was duly registered by the sub-register office, Indore by paying the stamp value amounting to Rs. 2,35,255/- the understanding between you and the developer was that the you should get 75% built up area after development and developer is entitled to get 25% of build-up area. At point no.10 of page no. 4 of agreement placed on record it is mentioned that the possession of land has been given to the developer for construction of building. In this regards, the position in respect of transferees was very clear as according to section 53A of transfer of property Act, part possession/possession tantamount to transfer. Also at point no. 24 of page no. 6 of the agreement it is mentioned that the developer will complete the formalities regarding the ownership of the land by giving “jahir suchana” in daily newspaper on its own expenses. Development agreement giving right to receive a fixed share in the build-up area and putting the developers in possession of land constitutes transfer u/s 2(47) of IT Act. The transaction would amount to capital gain and attracted tax under section 45(1) of the IT Act. Further, the assessee has received Rs. 62,00,000/- as his 1/5 share in the property is left to be treated as Long term capital gain and added to the total assessed income of the assessee. You are, therefore, required to show cause why provisions of section 263 be not invoked in your case for the reasons mentioned above as the order of AO dated 16.12.2016 is erroneous in so far as it is prejudicial to the interest of revenue.”

4. During proceeding before Ld. PCIT, the assessee made a detailed submission to demonstrate that the assessment-order was neither erroneous nor prejudicial as alleged in the show-cause notice. However, Ld. CIT(A) was not satisfied with assessee’s submission and passed revision- order u/s 263 on 29.03.2019 wherein the assessment-order was set aside with a direction to Ld. AO to re-examine the issue and pass assessment- order afresh. Aggrieved by such revision-order, the assessee has now come in appeal before us.

(i) Firstly, we would like to ascertain whether the Ld. AO has made enquiry / investigation in the matter of impugned issue or not? On a careful consideration of the submission of Ld. AR, we observe that during assessment-proceeding, Ld. AO confronted the assessee qua the unsecured loans taken and it is in response to such query that the assessee filed / referred to the “Agreement” because the “unsecured loans” included a deposit of Rs. 62,00,000/- received from M/s Tirupati Buildcon. Therefore, the filing of “Agreement” was only to satisfy the source of deposit of Rs. 62,00,000/- included in the list of unsecured loans and nothing more. Hence, to say that by filing of “Agreement”, the Ld. AO has examined the transaction mentioned therein from the angle of capital gain, is a far cry. We agree that the position would have been considerably different if the query of Ld. AO would have been directed qua the “Agreement” / Capital gain / Transaction done by “Agreement” and the assessee would have filed details but the Ld. AO would not have discussed those details in assessment-order. In that case, perhaps, we would have been inclined to accept assessee’s stand that the Ld. AO has examined the relevant transaction even if not narrated in assessment-order. But the present case of assessee is totally different. Here the Ld. AO has enquired and examined qua the unsecured loans. Therefore, we do not agree in principle with the Ld. AR’s submission that the Ld. AO has enquired / investigated in the matter of taxability of capital gain resulting from the “Agreement”.

(ii) Secondly, we turn to another aspect of the issue involved, which of course would be whether the transaction concluded in the “Agreement”, actually gave rise to taxable capital gain or not? Ld. PCIT has treated the impugned transaction as taxable u/s 45(1) due to the reasons (i) The agreement was duly registered with sub-registrar office on payment of stamp-duty; (ii) The understanding between the assessee and other party was that the assessee shall get 75% built-up area, other party will get 25%; (iii) Condition No. 10 of the agreement clearly mentions that the possession of land had been given to M/s Tirupati Buildcon; (iv) Condition No. 24 of the agreement mentions that M/s Tirupati Buildcon will complete formalities regarding the ownership of the land by giving “Jahir suchna” in newspaper on its Shri Arun Mittal (v) the assessee had received Rs. 62,00,000/- from M/s Tirupati Buildcon. According to Ld. PCIT, these factors demonstrated that it was a case of “transfer” u/s 2(47). At this stage, we refer various conditions of the Agreement reproduced below:

Condition Covenant No. यह �क, �थमप� उनके �वा�म�व एवं आ�धप�य के उ�त भूख�ड पर 02 बहुमंिजला भवन का �नमा�ण करवाना चाहते है, �कंतु उनके पास इस हेतु यथे�ठ अनुभव नह�ं है तथा सभी काय� �य�थता क� वजह से �थमप� इस �वकास काय� का अनुभव रखने वाल� �वकासकता� ��वतीय प� कंपनी से जो पूंजी का �व�नयोजन करके �वकास काय� पूण� कर सके, उनसे भवन �नमा�ण काय� कराना चाहते है ।

यह �क, �थमप� उनके �वा�म�व एवं आ�धप�य के उ�त भूख�ड पर भवन 03 �नमा�ण काय� करवाना चाहते है तथा इस काय� के �लए �थमप� के �वारा ��वतीयप� के सम� ��ताव रखा िजसे ��वतीयप� ने �न�नां�कत शत� एवं दा�य�व� के अधीन �वीकार �कया है ।

04 यह �क, ��वतीयप� शहर इंदौर म� भवन �नमा�ण एवं अ�य �नमा�ण का काय� करते है, िजनका �ब�डर लायस�स रिज���करण �मांक 403/का.से/2009 है, और उनका उ�े�य अ�छ� �वा�लट� का �नमा�ण संबंधी काय� करना है । �वकासकता� /��वतीय प� ने �थमप� के ��ताव को �वीकार करके उनके �व�व एवं आ�धप�य के उपल उ�ले�खत भूख�ड पर भवन �नमा�ण संबं�धत �वकास करना �वीकार �कया है । यह �क, उपर व�ण�त भूख�ड के �नमा�ण अथवा �नमा�ण काय� के �लए �वीकृत 07 न�शे के अलावा अ�य �कसी भी �कार क� �वीकृ�तयां �ा�त करना आव�यक हुआ तो ऐसी �वीकृ�तयां �ा�त करने क� काय�वाह� �थमप� के नाम से संचा�लत क� जा सकती है, इस�लये सम�त काय�वाह� �थमप� के नाम से क� जावेगी, �कंतु उनमे लगने वाल� मेहनत एवं सम�त �यय� का उ�तरदा�य�व ��वतीयप� का रहेगा, चूं�क �ा�त होने वाल� अनुम�तयां �थमप� के नाम से �ा�त होगी, इस�लये �थमप� को ऐसी क� जाने वाल� काय�वा�हय� म� ��येक �म पर ��वतीयप� को सहयोग �दान करना होगा और इस हेतु आव�यक होने पर भूख�ड से संबं�धत �त�व लेख एवं अ�य अ�भलेख समय-समय पर

Shri Arun Mittal 08 अनुसार भवन �नमा�ण काय� �कया जाना है । यह सम�त काय� ��वतीयप� पूण� कर�गे और इस हेतु लगने वाले सम�त �नमा�ण काय� क� लागत का भुगतान करने का उ�तरदा�य�व ��वतीयप� का रहेगा । यह �क �थमप� �वारा उ�ले�खत भूख�ड का �नमा�ण काय� ��वतीयप� से 09 करवाना �नि�चत �कया है और इस �नमा�ण काय� के पूण� होने म� लगभग 48 माह का समय लगने क� संभावना है उसम� �ेस पी�रयड 06 माह और बढ़ाया जा सकेगा । �थमप� �वारा उ�ले�खत भूख�ड �नमा�ण काय� हेतु उसका आ�धप�य ��वतीयप�को स�प �दया है । उसमे य�द �कसी दैवीय �कोप, �ाकृ�तक आपदा या दुघ�टना िजसमे भूकंप, आगजनी या दंगा इ�या�द होता है या क�यू� लगने अथवा ऐसी कोई �ाकृ�तक प�रि�थ�त िजस पर दोनो ह� प� का कोई ��य� अथवा अ��य� �नयं�ण नह�ं हो, इन सबक� वजह से �नमा�ण म� कोई �वल�ब उ�प�न होता है, तो ऐसी अव�ध म� �नमा�ण काय� बंद रहने के कारण इतने �दवस क� अव�ध को इस 48 माह क� अव�ध म� अ�त�र�त समय के �प म� बढ़ाया जावेगा, यह अव�ध �ेस पी�रयड 06 माह के अ�त�र�त होगी । उ�त अव�ध क� गणना इ�दौर नगर पा�लक �नगम से सभी अनुम�तयां �ा�त होने के उपरांत शु� होगी । यह �क �थमप� ने उ�ले�खत भूख�ड पर �नमा�ण काय� हेतु ��वतीयप� को इस 10 अनुबंध अनुसार भूख�ड का क�जा स�पकर भवन �नमा�ण क� इजाजत �दान कर द� है । ��वतीयप� उ�ले�खत भूख�ड का �वकास एक साथ या अलग-अलग भाग� म� अथवा अलग-अलग �टेजेस पर �वयं क� लागत से �वकास काय� पूण� कर�गे । उ�ले�खत भूख�ड पर भवन �नमा�ण हेतु इंजी�नयर, का��े�टर, ठेकेदार, मजदूर आ�द अ�य जो भी आव�यक हो, को मौके पर �नयु�त कर सक�गे । ��वतीयप� �वारा �नयु�त �कये गये कम�चा�रय� पर �थमप� का कोई �नयं�ण एवं �कसी �कार क� दखलअंदाजी नह�ं रहेगी । यह �क, �नमा�ण काय� म� अ�छ� गुणव�ता का मटे�रयल लगाना होगा । 16

If we ready the covenants carefully, they clearly specify that the assessee only wanted to have “construction-work” done by M/s Tirupati Page 8 of 12

Buildcon. Condition No. 2 and 3 clearly state “भवन �नमा�ण काय� करवाना चाहते है”. Condition No. 4 clearly mentions that M/s Tirupati Buildcon had agreed to do construction-work over the land “owned and possessed” by assessee. Condition No. 7 clearly specifies that all approvals shall be obtained in the name of assessee. Condition No. 10 specifies that the possession is given to M/s Tirupati Buildcon for doing “construction-work”, it nowhere says that possession has been given in order to place M/s Tirupati Buildcon in the position of owner. Condition No. 16 clearly obligates M/s Tirupati Buildcon to use good quality material in “construction-work”. Regarding deposit of Rs. 62,00,000/- from M/s Tirupati Buildcon, the assessee has pointed out that it was a mere security-deposit for ensuring performance. The assessee had further submitted before Ld. PCIT that the security of Rs. 62,00,000/- was refunded in subsequent years, the details of refund were submitted before Ld. PCIT (Page 3 of the Paper Book). Thus, from an overall analysis of all these terms, we can safely conclude that it is an Agreement whereby and where-under the assessee had merely given a licence / permission to M/s Tirupati Buildcon for carrying out “construction-work”, the assessee had not given absolute and full-fledged rights to M/s Tirupati Buildcon. Hence it does not satisfy the definition of “transfer” contemplated u/s 2(47).

“16. We have carefully considered the rival submissions and perused the record as well as the case law cited before us. The case of the assessing officer precisely is that by virtue of the amendment to section 2(47)(v) of the Income Tax Act, there is a "transfer" of immovable property in the year under consideration. In order to appreciate as to whether the facts suggest "transfer" of immovable property in the year under consideration, it is necessary to bear in mind the facts and circumstances of the instant case and the specific clauses in the agreement, dated 29-7-1987 as amended by the supplementary agreements, dated 24-9-1987. Admittedly, the last instalment falls due in the month of May, 1988. For the Page 9 of 12 assessment year under consideration, the previous year ends on 31-3-1988. The clauses in the agreement, which are extracted hereinabove, amply show that the possession of the property is agreed to be given to the developers only upon payment of the last instalment and till such time, the assessee has a right to revoke the contract in certain eventualities. The language used in the contract also, to our mind, indicates that it is not a case of transferring the possession of the property to the developers to enjoy absolute rights over the said property, but it is a case of mere licence to him to enter upon and carry on the developmental activities in the said property. In the light of the specific clause in the agreement, as regards the transfer of possession of the property, it is for the revenue to prove that the assessee gave possession of the property to the developers before the end of the previous year relevant to assessment year 1988-89 and such transfer of possession, if any, debars the assessee from enforcing against the transferee or persons claiming under him any right in respect of the property. Thus, neither in terms of section 2(47)(v) of the Income Tax Act, nor in terms of section 53A of the T.P. Act, the impugned transaction can be classified as "transfer" of capital asset or would be considered as allowing of the possession of any immovable property in part-performance of a contract of the nature referred to in section 53A of the T.P. Act. As rightly pointed out by the learned counsel for the assessee, the transaction can at best be classified as an agreement granting licence to the developers within the meaning of section 52 of the Easement Act, 1882. It may also be noted that the revenue has not brought any material to show that as on 31-3-1988 i.e. the last day of the previous year, the developer was willing to perform the contract on his part. On the contrary, the factum of delayed payment of the last instalment would indicate that the assessee had the privilege to terminate the contract as per terms of agreement and the other party cannot have any protection under law to seek specific performance of the contract or to take shelter under section 53A of the T.P. Act. Thus, the conditions stipulated in section 53A of the T.P. Act are also not satisfied. Thus, on a careful perusal of the agreements and upon a plain interpretation of the concerned provisions, we are of the view that the impugned agreements did not give rise to any transfer, in the previous year relevant to assessment year 1988-89, of the assessee's land at Thane and, therefore, the consideration receivable by the assessee by virtue of the impugned agreements is not taxable under the head 'capital gains' in this year. We, therefore, uphold the order of the Commissioner (Appeals) and dismiss the appeal filed by the department.”

Order pronounced as per Rule 34 of I.T.A.T. Rules, 1963 on 29.09.2022.