Nishank Sakariya Vs ACIT (ITAT Chennai)
The Chennai Bench of the Income Tax Appellate Tribunal allowed the appeal of Nishank Sakariya for Assessment Year 2013-14 and invalidated the reassessment initiated through notice dated 23 March 2020. The appeal challenged the order of the CIT(A)/NFAC dated 29 April 2024. The Bench comprised Aby T. Varkey, Judicial Member, and Amitabh Shukla, Accountant Member, and pronounced its order on 8 January 2025.
The assessee filed his return on 29 September 2013 declaring income of Rs.2,28,64,820. The original scrutiny assessment under Section 143(3) was completed on 24 February 2016 at Rs.2,32,05,740 after an addition of Rs.3,40,920 under Section 14A. The Tribunal first condoned a delay of 70 days in filing the appeal, having accepted the explanation for the delay.
The reopening concerned a Joint Development Agreement dated 6 April 2012 for land at Puzhal, Red Hills, Chennai. The Assessing Officer considered that execution of the agreement constituted transfer under Section 2(47)(v) in AY 2013-14, whereas the assessee had declared long-term capital gains on the property in AY 2014-15 and the relevant scrutiny assessment had accepted those gains.
The recorded reasons referred to the sharing arrangement under which the developer was entitled to 66.66% of the saleable area and the owner to 33.33%, together with a guaranteed minimum return of Rs.9 crore. The Assessing Officer alleged that the agreement had not been disclosed in the original AY 2013-14 assessment and that taxable capital gains had therefore escaped assessment.
The reassessment order dated 30 September 2021 computed long-term capital gains of Rs.1,29,40,706, credited the amount of Rs.1,15,33,051 disclosed for AY 2014-15 and made an addition of Rs.14,07,655. The Tribunal examined the legal validity of reopening before considering the substantive computation.
The Tribunal observed that the Section 148 notice was issued more than four years after the end of AY 2013-14, following an original scrutiny assessment. The conditions of Section 147 and its then-applicable first proviso therefore governed the reopening. It examined the recorded reasons on their own terms, disregarding the client-code-modification issue on which no adverse reassessment finding had been made.
Crucially, the Joint Development Agreement was unregistered. Applying Sections 17(1A) and 49 of the Registration Act, 1908, read with Section 53A of the Transfer of Property Act, the Tribunal held that the agreement was not enforceable for purposes of Section 53A. Accordingly, its execution did not amount to a transfer within Section 2(47)(v) of the Income-tax Act.
The Tribunal relied expressly on the Supreme Court decision in CIT v. Balbir Singh Maini, [2017] 86 taxmann.com 94 (SC), which explained that an unregistered agreement could not support a transfer under Section 2(47)(v) through the mechanism of Section 53A. The premise underlying the Assessing Officer’s recorded belief of income escaping assessment was thus legally unsustainable.
The Tribunal quashed the notice under Section 148 and held the reopening invalid. It did not adjudicate the merits of the capital-gains addition or the other legal grounds. The decision concerns the pre-2021 reassessment framework applicable to the notice and the specific unregistered agreement in the record.
Cases Discussed
- CIT v. Balbir Singh Maini, [2017] 86 taxmann.com 94 (SC) — An unregistered JDA is ineffective for Section 53A and cannot establish transfer under Section 2(47)(v).
FULL TEXT OF THE ORDER OF ITAT CHENNAI
2. At the outset, the Ld. Counsel for the assessee submitted that there is a delay of ‘70’ days in filing of this appeal and that was because assessee was prevented by sufficient cause from filing it on time. Hence, the Ld. Counsel for the assessee prayed for condonation of delay, for which, the Ld.DR objects; But taking note of the reason for delay, we find it adequate to excuse the delay. Hence, we condone the delay of ‘70’ days and proceed to adjudicate the appeal on merits.
3. The assessee has raised several grounds against impugned order including the legal issue challenging the jurisdiction of the AO to have reopened the original assessment u/s.143(3) of the Income Tax Act, 1961 (hereinafter in short “the Act”) after four years from the end of the assessment year and consequently has challenged the issue of notice u/s. 148 of the Act on 23.03.2020. Since assessee has raised the legal issue, we will deal with it first.
4. The brief facts regarding the legal issue are that the assessee had filed his return of income (RoI) on 29.09.2013 for AY 2013-14 declaring total income at Rs.2,28,64,820/- which was selected for scrutiny under CASS and the first round was completed u/s. 143(3) of the Act on 24.02.2016 at total income of Rs.2,32,05,740/- after making addition of Rs.3,40,920/- u/s.14A of the Act. The AO in his reasons recorded for reopening the assessment for AY 2013-14, takes notes of certain events of subsequent assessment year i.e. AY 2014-15, wherein the assessee had admitted Long Term Capital Gain (LTCG) of Rs.1,72,99,576/- in respect of sale of land at Puzhal, Red Hills, Chennai, [herein after the scheduled land] which was accepted by the AO while framing assessment u/s.143(3) of the Act for AY 2014-15 by order dated 01.06.2016.
5. According to AO, since Joint Development Agreement (JDA) was entered into by the assessee with M/s.Sky Builders Pvt. Ltd., on 06.04.2012 for transfer of the scheduled land, u/s.2(47)(v) of the Act, so the transfer of the capital asset of land took place on 06.04.2012, which event happened in AY 2013-14 and LTCG arising from it ought to have been offered in AY 2013-14 and therefore, there has been escapement of income; and therefore, he re-opened the assessment. [There was another issue also for which re-opening was resorted to i.e. Client Code Modification (CCM) which has been dropped/no adverse view has been taken while passing the re-assessment order dated 30.09.2021]. The assessee objected to the reopening of the assessment and requested copy of the reasons recorded by letter dated 17.09.2020 [refer Page No.93A of the PB] and issued reminders on 03.02.2021 [refer Page No.97-98 of the Paper Book] and received copy of the reasons only on 20.09.2021 [Page Nos.102-104 of the Paper Book] and thereafter assessee filed his objection on 23.09.2021 [refer Page Nos.105-108 of the Paper Book] and the AO rejected the objections on the same day which has been reproduced at Page No.3 of the re-assessment order and passed the reassessment order on 30.09.2021 by computing Long Term Capital Gain (LTCG) on the transfer of the same land at Puzhal/ scheduled land (which was offered by assessee in AY 2014-15) at Rs.1,29,40,706/-. The AO taking note that assessee had disclosed LTCG of Rs.1,15,33,051 in its RoI for AY 2014-15; So, he gave credit to it and added Rs.14,07,655/-(Rs.1,29,40,706 minus Rs.1,15,33,051).
6. Since the assessee has challenged the jurisdiction of the AO to have re-opened the assessment first let us look at the reasons recorded by the AO to re-open the assessment, which is reproduced as under:
Reason for reopening reissued,
The assessee has fled the return of income for the A.Y. 2013-14 on 29.09.2013 admitting total income of Rs. 2,28,64,820/- Income was assessed at Rs. 2,32,05,740/-u/s. 143(3) on 24.02.2016.
During scrutiny assessment for A.Y. 2014-15 of assessee, it was noticed that assessee admitted LTCG of Rs. 1,73,35,538/- (in respect of sale of land at Puzhal, Red Hills, Chennai. From the record it was seen that the assessee had entered into Joint Development Agreement with Silver Sky Builders Pvt. Ltd. for this property on 06.04.2012). The salient features of this agreement is reproduced-
Paragraph 2. Sharing Ratio
2.1 In consideration of the Developer having agreed to build, erect and complete the Buildings at its own costs in the Schedule property, the Developer shall be entitled to 66.66% of the saleable area along with proportionate common areas (Developer Allocation). The undivided share of land being part of the Developer Allocation shall be transferred by the owner in favour of Developer or its nominee(s) as may be instructed by the developer. 2.2 The owner shall be entitled to 33.33% of the saleable area along with the proportionate common areas (owner Allocation).
2.5 Subject to the terms of this agreement, the Developer has guaranteed a minimum return of Rs. 9,00,00,000/- as the share in lieu of selling the Owners Allocation to the Purchasers
As per transfer of property, the LTCG on sale of land should have been admitted during A.Y. 2013-14.
Basis of forming reason to believe and details of escapement of income:
In this case return of income was filed for the year under consideration and regular assessment u/s. 143(3) was made on 24.02.2016.
The requisite material facts as noted above in the reasons for reopening were not furnished by the assessee during the assessment for A.Y. 2013-14. Evidence of JDA could not be discovered by the A.O. suo motu unless the information was passed on by the assessee himself or it was disseminated to the A.O. by any authorities/3rd Party. In this case, evidence of JDA came to light during the scrutiny proceedings for A.Y. 2014-15.
It would require due diligence by the AO to extract the information of JDA or CCM alone on his own effort. Fresh material in the form of JDA or CCM was available to A.O. after the assessment. Accordingly, attracting provision of Explanation 1 of section 147 of the Act.
For aforesaid reasons it is not a case of change of opinion by the AO.
Thus, I have reason to believe that income exceeding Rs.1,00,000/- has escaped assessment. The case of the assessee needs to be reopened within the meaning of section 147 of the Income Tax Act, 1961.
7. As per the settled position of law, when the jurisdiction of the Assessing Officer to reopen an assessment is challenged, the reasons recorded for re-opening of assessment has to be read on a standalone basis. Nothing can be added/nothing can be subtracted. However, in this case, we have to bear in mind that the issue regarding client code modification needs to be ignored, because, it has neither been discussed nor added by the AO in the re-assessment order. Now, when we look at the reasons recorded by AO to reopen, on a standalone basis, it is noted that in the first paragraph, the AO only reiterated about the assessee having filed the RoI for AY 2013-14 on 29.09.2013 admitting total income at Rs.2,28,64,820/- which was later assessed at Rs.2,32,05,740/-u/s.143(3) of the Act on 24.02.2016; and the next line states about the scrutiny assessment for AY 2014-15, wherein assessee has admitted LTCG of Rs.1,73,35,538/- in respect of sale of land at Puzhal, Red Hills, Chennai. Thereafter, the AO notes (in his own words) “from the records, it was seen that assessee has entered into JDA with M/s.Silver Sky Builders Pvt. Ltd., for this property on 06.04.2012;” and then, he reproduced Para 2 of the JDA i.e., sharing ratio (supra) at 66.66% for the developer and 33.33% for the assessee and Para No.2.5 of JDA wherein, the developer has guaranteed minimum return of Rs.9 Crs. as the share in lieu of selling the Owners Allocation to the purchases. Thereafter, the AO concludes that LTCG on sale of land should have been admitted during AY 2013-14. Then he states about the basis for forming reason to belief and details of escapement of income, and notes that the assessee didn’t furnish during the course of assessment proceedings for AY 2013-14, the evidence regarding JDA dated 06.04.2012; and that fact [JDA] came to light during the scrutiny proceedings for AY 2014-15. Therefore, according to the AO, there was fresh material in the form of JDA before him which attracts Explanation-1 of sec.147 of the Act and for the said reasons, he has re-opened the assessment u/s.147 of the Act.
8. Before proceeding further, we note that relevant assessment year under consideration is AY 2013-14 and the scrutiny assessment u/s.143(3) was completed on 24.02.2016 and thereafter the AO has issued the impugned notice u/s.148 of the Act on 23.03.2020 i.e. after four years from the end of the relevant assessment year and therefore, the condition precedent to reopen as mandated u/s. 147 of the Act as well as the proviso to section 147 of the Act need to be satisfied by the AO before he reopens the scrutinized assessment. In other words, the AO in order to successfully reopen the assessment in the present case has not only satisfy that there was reason to believe escapement of income but also that assessee failed to disclose fully and truly all the material facts necessary for assessment of income for AY 2013-14. The bone of contention/issue in this case is regarding LTCG in respect of sale of property at Puzhal, Red Hills, Chennai [scheduled land], and the AO has admitted that the assessee has declared LTCG on the transfer of the very same property by declaring LTCG of Rs.1,73,35,538/- in the subsequent AY 2014-15; which has undergone scrutiny and the AO has accepted the LTCG by passing the assessment order dated 01.06.2016 u/s.143(3) of the Act. The AO after acknowledging the fact that assessee has offered LTCG on the sale of scheduled land has still resorted to re-open the assessment only on the ground that assessee failed to disclose JDA entered into by assessee & Developer on 06.04.2012 which material fact according to him, was necessary for assessment for AY 2013-14; and since he came to know about it [JDA] only during the scrutiny proceedings for AY 2014-15 [which culminated in framing of the assessment order u/s.143(3) of the Act on 01.06.2016, wherein he accepts the LTCG], he justifies the reopening of assessment. In this context, it is interesting to note from the admission of AO itself that even though he came to know about the JDA dated 06.04.2012 during the course of assessment proceedings for AY 2014-15, [which assessment was completed on 01.06.2016], still he preferred to re-open the assessment of AY 2013-14 only by issuing notice on 23.03.2020 [i.e. approximately after four years]. Having said so, it is noted from the contents of the reasons recorded supra that only reason for re-opening is that since the JDA has been signed on 06.04.2012 (between the assessee and the developer) the transfer of property has taken place in AY 2013-14 and since assessee didn’t offer LTCG in AY 2013-14, therefore there is escapement of income. We don’t agree to such a view of the Assessing Officer because it is per-se on wrong assumption of law; and notes that the assessee has placed copy of JDA dated 06.04.2012 at Page Nos.41-55 of the Paper Book. On perusal of the same it is noted that it is not a registered document as per the Registration Act, 1908. Therefore, after amendment in the year 2001 in section 17(1A) and section 49 of the Registration Act, if an agreement, (like the JDA in the present case) is not registered, then it shall have no effect in law for the purposes of Section 53A of the Transfer of Property Act. In short, there is no agreement in the eyes of law which can be enforced under Section 53A of the Transfer of Property Act. This being the case, we are of the view that the Ld.AR of assessee rightly stated that in order to qualify as a “transfer” of a capital asset under Section 2(47)(v) of the Act, there must be a “contract” which can be enforced in law under Section 53A of the Transfer of Property Act.
A reading of Section 17(1A) and Section 49 of the Registration Act shows that in the eyes of law, there is no contract which can be taken cognizance of for the purpose specified in Section 53A of Transfer of Property Act. For such a proposition, we rely on the decision of the Hon’ble Supreme Court in the case of CIT v. Balbir Singh Maini reported in [2017] 86 taxmann.com 94 (SC), wherein the Hon’ble Supreme Court held as under:
20. The effect of the aforesaid amendment is that, on and after the commencement of the Amendment Act of 2001, if an agreement, like the JDA in the present case, is not registered, then it shall have no effect in law for the purposes of Section 53A. In short, there is no agreement in the eyes of law which can be enforced under Section 53A of the Transfer of Property Act [This being the case, we are of the view that the High Court was right in stating that in order to qualify as a “transfer” of a capital asset under Section 2(47)(v) of the Act, there must be a “contract” which can be enforced in law under Section 53A of the Transfer of Property Act. A reading of Section 17(1A) and Section 49 of the Registration Act shows that in the eyes of law, there is no contract which can be taken cognizance of. for the purpose specified in Section 53A.
9. Therefore, when the foundation on the basis of which, the AO resorted to re-open the assessment [ie un-registered JDA dated 06.04.2012] being no agreement in the eyes of law which can be enforced u/s.53A of the Transfer of Property Act, the AO’s conclusion that transfer of property has taken place in AY 2013-14 is erroneous in law and therefore the AO erred in law to conclude on the basis of ibid JDA dated 06.04.2012 that transfer of scheduled land/property has taken place in AY 2013-14 and not in AY 2014-15. Since the ibid JDA has no efficacy in the eye of law, obviously no “transfer” can be said to have taken place under the aforesaid document. Therefore, when the reasons recorded revolves around the unregistered JDA dated 06.04.2012, which is not an agreement/contract legally enforceable, the foundation on the basis of which AO formed the belief of escapement of income itself falls, and consequently, the notice issued u/s 148 of the Act is held to be bad in law. And since we are deciding this case on this legal ground, it is unnecessary for us to go into merits of the addition and therefore, reopening of assessment is held to be bad in law and therefore, assessee succeeds and other issues both legal as well as merits are left open.
10. In the result, appeal filed by the assessee is allowed.
Order pronounced on the 08th day of January, 2025, in Chennai.
