M/S.TRIO PROPERTY DEVELOPERS P. LTD,CALICUT vs. THE ACIT, CALICUT

Per ABRAHAM P.GEORGE, ACCOUNTANT MEMBER:

Assessee in this appeal assails an order dated 28/03/2016 of Pr. CIT,

Kozhikode passed u/s. 263 of the Income Tax Act, 1961 ( in short’the Act’).

income for the impugned assessment year declaring a loss of Rs.27,541/-. It

seems the return was originally processed u/s. 143(1) of the Act. On

22/03/2013, a notice u/s. 148 of the Act was issued to the assessee. Pursuant

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to such notice, assessee filed another return which reflected the same loss as

shown in the original return. Assessee had during the relevant previous year

entered into a Memorandum of Understanding (MOU) and Joint Development

Agreement (JDA) with one M/s. Focus Mall, a partnership firm, for developing a

property measuring 59.42 Ares of Kasaba Village, Kariakunnu Desom, Kozhikode.

As per terms of these agreement dated 21/12/2005, assessee granted exclusive

license to M/s. Focus Mall, to enter into the property and construct a shopping

mall. It seems assessee delivered actual, physical and vacant possession of the

property to the developer. As per the agreement, developer was to construct a

shopping mall with a minimum super built-up area of 1,34,801 sq ft. of which

71,444 sq. ft. was to be delivered to the assessee and the developer was to

retain balance Rs.63357 sq. ft. The price for the constructed area of 71,444 sq.

ft. which was to be delivered to the assessee, as per the agreement was Rs.975

per sq. ft. The Assessing Officer was of the opinion that assessee having handed

over the possession of the land, there was a transfer within the meaning of 2(47)

of the Act read with section 53-A of the Transfer of Property Act, 2002 (T.P. Act).

Assessee was required to explain why capital gains arising out of the transfer

was not shown in its return.

only a license to enter into the property and there was no transfer of property to

the said M/s. Focus Mall. As per the assessee, it had not executed any

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irrevocable power of attorney in favour of M/s. Focus Mall. Contention of the

assessee was that there was no handing over possession, but only a license to

enter into the property for constructing a building. Thus as per the assessee,

there was no transfer within the meaning of 2(47) of the Act. However, the

Assessing Officer was not impressed. According to him, the terms of the MOU

and JDA clearly had all the ingredients necessary for constituting a transfer, as

contemplated in Section 53A of the T.P. Act Further, according to him, execution

of a power of attorney was not an essential ingredient for attracting section 53A

of the T.P. Act. Though assessee had offered capital gains on certain units sold

by it out of the space allocated to it, in the assessment year 2009-10, as per the

Assessing Officer, this would not be a reason not to consider the capital gains in

the impugned assessment year. He, thereafter, computed the capital gains

taking the full value of consideration at the rate of Rs.975 per sq. ft. for the area

of 71,444 sq. ft. to which the assessee was entitled, computing Long Term

Capital Gains at Rs.5,46,97,415/-.

4 On 22.01.2016, a notice was issued by Pr. CIT u/s. 263 of the Act. As per the

Pr. CIT while computing the capital gains, Assessing Officer had erroneously

taken full value of consideration of the property sold at Rs.6,96,57,000/-. Pr. CIT

noted that M/s. Focus Mall, the developer, in its Profit and Loss account for the

financial years relevant to the assessment years 2008-09 and 2009-10, had

shown a project cost of Rs.28,87,93,737/-. Since 53% of the constructed area

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was the share of the assessee, as per Pr. CIT, the consideration for the transfer

should have been taken at Rs.15,30,60,680/-, being 53% of the project cost of

Rs.28,87,93,737/- incurred by M/s. Focus Mall. As per Pr. CIT, full value of the

consideration of the land was erroneously considered as Rs.6,96,57,000/- against

the correct amount of Rs.15,30,60,680/-. Pr. CIT noted that the Assessing

Officer had not conducted necessary enquiries during the course of scrutiny

proceedings to determine the full value of consideration and therefore, the

assessment order was erroneous and prejudicial to the interests of the Revneue.

was no transfer at all coming within the ambit of the T.P. Act. As per assessee

there was only a license given to enter into the property. Contention of the

assessee was that the agreement specified a price of Rs.925 per sq. ft. and

developer had undertaken the project based on this consideration. However, Pr.

CIT was not impressed by the above explanation. According to him, assessee

having handed over the possession to the developer, conditions of section 53A of

the T.P. Act stood satisfied. Further according to the Pr. CIT, construction was

undertaken by M/s. Focus Mall and M/s. Focus Mall had incurred total cost of

Rs.28,87,98,737/- for the project, and according to the MOU the assessee was

entitled to 53% of the area which translated to only Rs.15,30,60,680/-. He was

of the opinion that the Assessing Officer had failed to conduct a proper

verification. He held the order to be erroneous and prejudicial to the interests of

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the Revenue and directed the Assessing Officer to make a fresh assessment after

giving an opportunity of hearing to the assessee.

that in the first place there was no transfer of property during the relevant

previous year. According to him, even if it was presumed that there was a

transfer, the terms of the MOU and JDA could not be ignored. Ld. Counsel

submitted that Assessing Officer had examined the JDA. as well as the MOU and

accepted the price of Rs.975/- per sq. ft. for valuing 71,444 sq. ft. area to which

the assessee was entitled. As per Ld. AR, cost shown by the developer in its P&L

account, could not be construed as a reason to hold that the order of the

Assessing Officer suffered from any error. The Assessing Officer had carefully

gone through the JDA and the MOU and the consideration was, as per the Ld.

AR, rightly arrived at Rs.975 per sq. ft. According to him Assessing Officer’s

conclusion which was arrived at after due application of mind could not be said

to be erroneous and prejudicial to the interests of the Revenue. Contention of

Ld. AR was that twin conditions which were to be satisfied for invoking the

jurisdiction vested u/s. 263 of the Act were not satisfied in the instant case. He

placed reliance on the decision of the Mumbai Bench of the Tribunal in the case

of Small Wonder Industries vs.CIT and the decision of the Delhi Bench of the

Tribunal in the case of Gurucharan Dass Arora vs. CIT (2017) 53 ITR (Trib.) 364,

apart from a host of other judgments.

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Pr. CIT had specific information which proved that M/s. Focus Mall had incurred

a total cost of Rs. 28,87,93,737/- for developing the property. According to him,

Assessing Officer should not have blindly accepted the rate mentioned in the

MOU and JDA. Ld. DR submitted that the Assessing Officer fell in error when he

failed to verify the records pertaining to M/s. Focus Mall. By not showing the

correct assessable project cost, as per Ld. DR, the assessee was trying to

conceal its long term capital gains. The order of the Assessing Officer, as per Ld.

DR was erroneous and prejudicial to the interests of the Revenue and hence

Pr.CIT was justified in invoking the jurisdiction vested on him u/s. 263 of the Act.

place, what we notice is that the original assessment was pursuant to a

reopening done u/s. 147 of the Act. Though, it has not been stated in as many

words, a reading of the assessment order clearly indicate that the re-assessment

proceedings were initiated since assessee in its return had not shown the capital

gains arising to it, on the alleged transfer of property for development as per the

JDA and MOU entered with M/s. Focus Mall on 21/12/2005. Assessing Officer

had thereafter made detailed study of the agreement entered by the assessee

with M/s. Focus Mall. Assessee had submitted before the Assessing Officer that

there was no transfer during the relevant previous year and capital gains arising

on sale of the units were returned in the assessment year 2009-10. However,

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the Assessing Officer took the view that as per clause 2.1 of the agreement,

assessee having delivered actual, physical and vacant possession of the property

to the developer, there was a transfer. Para 3 of the original assessment order is

very relevant and this is reproduced hereunder:

“3. Accordingly, as per clause 2.1 of the Agreement, the assessee delivered actual, physical and vacant possession of the property to the developer. The developer agreed and undertook to develop the property by constructing a shopping mall with minimum super built-up area of 1,34,801 sq. ft. The market value of land was fixed at Rs.10,00,000/- per cent. The developer also undertook to deliver to the owner, owner’s constructed area of above 71,444 sq. feet at an agreed price of Rs.975.sq. ft. The developer was entitled to developers area of 63357 sq. ft. of the total area”.

assessee by M/s. Focus Mall were sold by the assessee during the month of

March, 2007. A number of such instances have been noted by the Assessing

Officer on pages 6 & 7 of his order. Assessing Officer worked out the capital

gains considering the full value of the consideration as Rs.6,96,57,000/-, being

value of 71,444 sq.ft. of the constructed area to which assessee was entitled at

Rs.975 per sq. ft. The rate of Rs. 975 per sq. ft. has been taken from para 3.4 of

the JDA. This particular clause is reproduced hereunder:

“3.4 Further the Developer undertakes to deliver to the Owner or to their nominees, the Owners Constructed Areas in such number of units as agreed between parties) about 71444 Sq. ft. Of super built up/saleable

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area (inclusive of proportionate share in the common area) at an agreed price of rs.975/- per sq. ft. of super built up/saleable area.”

When the whole assessment done by the Assessing Officer was based on the

JDA and MOU entered into by the assessee on 21/12/2010, we cannot say that

Assessing Officer had accepted the price of Rs.975/- per sq. ft. mentioned in

clause 3.4 of the JDA without application of mind. We cannot say that this

aspect alone was not considered by the Assessing Officer while he relied on the

JDA and MOU to make the assessment itself. That apart, the expenses incurred

by M/s. Focus Mall in its Profit and Loss account may have little relevance for the

assessment of capital gains in the hands of the assessee. Such expenditure was

not in the control of the assessee and whether such expenditure was incurred for

this project also cannot be within the knowledge of the assessee. When the

assessee entered into JDA with M/s. Focus Mall, it had agreed to a price which as

far as assessee was concerned was final. Assessee could not be burdened with a

varying value of consideration, in consonance with what was debited by the

developer in its books of accounts. We are of the opinion that the Assessing

Officer was justified in relying on the JDA in fixing the sale consideration and

computing the capital gains. We do not find any error in the order of the

Assessing Officer. In any case, when the assessee ultimately effect sales of the

units made available to it by the developer, the cost that it can set off against

the sale consideration will be only what has been accepted by it. Viewed from

this angle we cannot say that there was any prejudice caused to the revenue.

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Thus, we are of the opinion that the twin conditions necessary for invoking

jurisdiction vested u/s. 263 of the Act were not satisfied in this case. Order of

Pr. CIT is set aside.

Pronounced in the open court on 07-06-2017.

sd/- sd/- (GEORGE GEORGE K.) ( ABRAHAM P. GEORGE) JUDICIAL MEMBER ACCOUNTANT MEMBER

Place: Kochi Dated: 07th June, 2017 GJ Copy to: 1. M/s. Trio Property Developers (P) Ltd., 4th floor, Indus Avenue, Kallai Road, Kozhikode. 2. The Assistant Commissioner of Income-tax, Circle-1(1), Kozhikode. 3. The Commissioner of Income-tax(Appeals), Kozhikode. 4. The Pr. Commissioner of Income-tax, Kozhikode. 5. D.R., I.T.A.T., Cochin Bench, Cochin. 6. Guard File. By Order

(ASSISTANT REGISTRAR) I.T.A.T., Cochin