Brief of the case:
In this case ITAT examined the issue that where an assessee entered into an land development agreement by holding land as stock-in-trade, the expected business profits arose as a result of agreement can be taxed as income from capital gain. Hon’ble ITAT held that no matter how reasonable is it to assume that the assessee will make these profits and thus cannot be brought to tax at this stage.
Facts of the case:
- Assessee is engaged in the business as a builder and was absolute owner of a piece of land.
- Assessee declared land stock in trade and on 07.05.2009 entered into a development agreement with Menorah Realties Pvt Ltd (MRPT).
- As per agreement the assessee was to transfer entire land holding to this project and will receive 40% of total saleable area in consideration of the land being used for this housing project.
- By way of a subsequent modification to this agreement, in consideration of delay in execution of project, the assessee was to get an additional 2% share in the constructed area, parking space and undivided interest in the property.
- On these facts AO asked the assessee to show cause as to why the capital gains arising on transfer of capital asset via the joint development agreement not to be brought to tax in this assessment year i.e. 2010-11.
- The AO proceeded to compute the capital gains by taking the cost of construction of assessee’s share in the built up area as consideration for which the land was transferred.
Contention of the revenue:
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